US Dollar edges lower toward the critical 95 handle

The US Dollar Index, which tracks the greenback against a basket of six major currencies, moved sideways above the 95.50 mark for the majority of the day before coming under a renewed selling pressure in the NA session. The index slumped to a 12-day low at 95.08 and recovered modestly to 95.20, where it was still down 0.55% on the day.

Although there were no clear fundamental developments behind the broad-based USD weakness, a jump by the S&P 500 to a new record high may have caused a flow of capital out of the dollar into stocks. At the moment, both the S&P 500 and the Dow Jones Industrial Average are up 0.4% on the day.

Earlier today, Dallas Fed President Robert Kaplan published an essay on the bank's website that highlighted his support for the continuation of gradual rate hikes. "The Central bank has met its goals and should raise interest rates gradually to the neutral level," Kaplan said and added that three or four more rate hikes would be needed to reach the neutral level.

On Wednesday, the FOMC is going to publish the minutes of its August meeting. "We expect participants to point to strong rates of growth in consumption and employment, as indicating that fiscal stimulus is passing through to activity more or less as members anticipated when they last updated their forecasts in June. While members will likely point to upside risk from stimulus and downside risk from protectionism, we believe it likely that the main message will be that gradual rate hikes remain appropriate," Barclays analysts said in a recently published report.

Technical levels to consider

 The index could face the first technical support at 95 (psychological level/50-DMA) ahead of 94.25 (Jul. 30 low) and 93.70 (Jul. 9 low). On the upside, resistances align at 95.40 (20-DMA), 96.40 (Aug. 20 high) and 97 (psychological level/Aug. 15 high).