North Korea tensions: Dollar Index opens lower & consolidates

This has been a stormy morning for the markets, courtesy of North Korea’s nuclear test on Sunday. It has been the sixth nuclear test since 2006 and the most powerful one. 

The reaction in the markets is not surprising - risk assets opened on a weak note as investors took cover under safe haven assets. 

The status of the American dollar is not clear. Is it a safe haven or a risk currency? Risk-off usually sees heightened demand for the long duration treasuries [thus leading to strong USD]. So USD could be considered as a safe haven currency. On the other hand, Fed is the most hawkish central bank out there, which also means USD is a high yielding/growth currency. 

The confusion is quite clear from the action in the Dollar Index this Monday morning. The DXY opened at 92.66 vs. Friday’s close of 92.85 and has traded largely in the sideways manner. The greenback showed resilience on Friday despite weak US wage growth and NFP data. As discussed here, the daily chart shows a bullish price RSI divergence. 

Dollar Index Technical Levels

A break above 92.78 [July 31 low] would open up upside towards 93.35 [Aug 31 high] and 93.63 [Aug 23 high]. On the other hand,  a failure to hold above 92.55 [Aug 2 low] would expose 92.10 [Friday’s low], under which a major support is seen at 91.62 [Aug 29 low].