USD Index comes under pressure and retreats from cycle highs

• The index gives away part of the recent advance to the 114.50 region.
• US yields correct lower in tandem with the selling bias in the dollar.
• CB Consumer Confidence, Durable Goods Orders, Fedspeak next on tap.

Following Monday’s new highs in the mid-114.00s, the USD Index (DXY) comes under some moderate selling pressure and revisits the 103.30 zone on turnaround Tuesday.

USD Index focuses on data

The index so far reverses two consecutive daily retracements and returns to the 103.30 zone on Tuesday, trimming part of the strong uptick seen on Monday on the back of the renewed improvement in the risk complex.

The daily pullback in US yields from recent multi-year tops also adds to the corrective decline in the dollar, showing some recovery in prices of bonds.

In the US data space, Durable Goods Orders and the Consumer Confidence print gauged by the Conference Board will take centre stage seconded by House Price Index and New Home Sales. In addition, Chicago Fed C.Evans (2023 voter, centrist) is also due to speak.

What to look for around USD

The upside bias in the dollar remains everything but exhausted and it has been fuelled further by the recent FOMC event and comments by Chair Powell. Despite the current correction, there seems to be scope for extra gains in the greenback in the short-term horizon.

Propping up the dollar’s underlying positive stance appears the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Durable Goods Orders, House Price Index, New Home Sales, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications Advanced Trade Balance (Wednesday) – Final Q2 GDP Grow Rate, Initial Claims (Thursday) – PCE/Core PCE, Personal Income/Spending. Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 0.57% at 113.45 and faces immediate contention at 109.35 (weekly low September 20) followed by 108.23 (55-day SMA) and finally 107.68 (monthly low September 13). On the other hand, a breakout of 114.52 (2022 high September 26) would expose 115.00 (round level) and then 115.32 (May 2002 high).