- DXY alternates gains with losses around 92.30.
- US 10-year yields stay depressed near the 1.40% region.
- The Chicago Fed index, Fedspeak next on tap in the docket.
The greenback starts the week in an inconclusive foot and prompts the US Dollar Index (DXY) to gyrate around the area of recent tops near 92.30.
US Dollar Index faces the next hurdle at 92.50
The index looks to add to the recent strong advance, although it seems to have met quite a solid resistance in the vicinity of 92.50 for the time being.
It is worth recalling that the sentiment for the dollar improved dramatically after the FOMC event last Wednesday opened the door to “talk about talk about tapering” earlier than anticipated by most investors, while the “dots plot” now signals two interest rate hikes at some point in late 2023.
Adding to the above, further improvement in key fundamentals and higher inflation could even bring forward a rate hike by end of 2022.
Recent strength in the buck also came in response to comments from (ex dovish?) St. Louis Fed J,Bullard at a CNBC interview on Friday, when he defended the recent hawkish twist in the Fed’s message.
Later in the US data space, the Chicago Fed National Activity Index is only due along with the speech by NY Fed J.Williams (permanent voter, centrist).
What to look for around USD
The index moved beyond the 92.00 level as investors continue to adjust to the recent hawkish message from the FOMC at its meeting on Wednesday. The likeliness that the tapering talk could kick in before anyone has anticipated and the view of higher rates in 2023 (or before) fuel the sharp bounce in the buck to levels last seen in mid-April. However, the still unchanged view on “transient” higher inflation and hence the continuation of the dovish stance by the Federal Reserve carries the potential to temper the current momentum in the dollar. A sustained break above the critical 200-day SMA should shift the dollar’s outlook to a more constructive one.
Key events in the US this week: Chairman Powell’s testimony, Existing Home Sales (Tuesday) – New Home Sales, flash Manufacturing PMI (Wednesday) – Final Q1 GDP, Durable Goods Orders, Initial Claims (Thursday) – Core PCE, final June Consumer Sentiment (Friday).
Eminent issues on the back boiler: Biden’s plans to support infrastructure and families, worth nearly $6 trillion. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating?
US Dollar Index relevant levels
Now, the index is losing 0.11% at 92.21 and faces the next support at 91.51 (200-day SMA) followed by 91.10 (100-day SMA) and finally 89.53 (monthly low May 25). On the flip side, a breakout of 92.40 (monthly high Jun.18) would open the door to 92.46 (23.6% Fibo level of the 2020-2021 drop) and finally 93.43 (2021 high Mar.21).
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