US Dollar Index regains the smile and 105.00 ahead of ISM

• DXY starts the month in a positive tone around 105.00.
• US yields extend the downtrend across the curve.
• Flash Manufacturing PMI, ISM Manufacturing next of tap.

The greenback, in terms of the US Dollar Index (DXY), regains some composure and trespasses the 105.00 yardstick on Friday.

US Dollar Index now looks to data

The index keeps the weekly upside well in place and leaves behind Thursday’s pullback, as the selling pressure seems to have returned to the risk-associated universe at the end of the week.

The dollar, in the meantime, remains on track to close the week with moderate gains and at shouting distance from the cycle peaks around 105.80 recorded in June 15 on the back of the resumption of the risk aversion, recession fears, a corrective downside in US yields and expectations of further tightening by not only the Fed, but also from the other major central banks.

In the US data space, the manufacturing sector will take centre stage with the releases of the final June S&P Global Manufacturing PMI and the always relevant ISM Manufacturing.

What to look for around USD

Renewed risk-off sentiment motivated the index to reclaim the area around the 105.00 zone despite US yields continued to trend lower.

The dollar, in the meantime, remains well supported by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy, all factors suggesting a stronger dollar in the next months.

Key events in the US this week: ISM Manufacturing, Final Manufacturing PMI (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is up 0.35% at 105.05 and a break above 105.54 (weekly high June 30) would expose 105.78 (2022 high June 15) and then 107.31 (monthly high December 2002). On the other hand, the next contention emerges at 103.67 (weekly low June 27) seconded by 103.41 (weekly low June 16) and finally 101.29 (monthly low May 30).