US Dollar Index clings to gains near 94.00 ahead of data

• The index adds to Monday’s gains and approaches 94.00.
• Solid support for the dollar emerged in the mid-93.00s so far.
• Consumer Confidence, housing data next of note in the calendar.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, extends the weekly bounce and gradually approaches the key 94.00 barrier on turnaround Tuesday.

US Dollar Index focuses on yields and data

The index advances for the second session in a row and extends the optimism witnessed at the beginning of the week following the mild bounce in US yields and alternating risk appetite trends.

In fact, yields in the front end and the belly of the curve advance modestly near the 0.45% yardstick and the 1.64% mark, respectively, on Tuesday, both reversing the recent weakness and now retargeting earlier tops.

Looking at the broader scenario, the persistent elevated inflation continues to put the transitory narrative around higher consumer prices to the test for the time being, while persevering supply disruptions amidst rising demand seems to underpin the “higher for longer” view around inflation. The recent strong pick-up in breakevens also collaborate with the latter.

Later in the US docket, housing data will include the House Price Index measured by the FHFA, the S&P/Case-Shiller Index and New Home Sales for the month of September. In addition, the Conference Board will publish its Consumer Confidence print ahead of the Richmond Fed Manufacturing Index.

What to look for around USD

The index manages to regain some upside traction after meeting decent contention in the 93.50 zone for the time being. The positive performance of US yields, supportive Fedspeak regarding the start of the tapering process as soon as in November or December (also bolstered by Friday’s comments by Chief Powell) and the rising probability that high inflation could linger for longer remain as key factors behind the constructive outlook for the buck in the near-to-medium term.

Key events in the US this week: CB’s Consumer Confidence, New Home Sales (Tuesday) – Durable Goods Orders, Advanced Trade Balance (Wednesday) – Flash Q3 GDP, Initial Claims, Pending Home Sales (Thursday) – PCE, Core PCE, Personal Income/Spending, Final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Discussions around Biden’s multi-billion Build Back Better plan. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is gaining 0.10% at 93.91 and a break above 94.17 (weekly high Oct.18) would open the door to 94.56 (2021 high Oct.12) and then 94.74 (monthly high Sep.25 2020). On the flip side, the next down barrier emerges at 93.49 (monthly low October 21) followed by 93.28 (55-day SMA) and finally 92.98 (weekly low Sep.23).