US Dollar Index looks offered near 95.70, focus on geopolitics

• DXY comes under mild pressure in the 95.70 region.
• The risk-on sentiment returns to the markets on Friday.
• CB Leading Index, housing data, Fedspeak next on tap.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, trades slightly into the negative territory around the 95.70 zone on Friday.

US Dollar Index offered on risk-on mood

The index navigates the lower end of the recent range south of the 96.00 mark against the backdrop of the improvement in the risk complex. Indeed, markets appear to have welcomed the news of a meeting between US Secretary of State Blinken and Foreign Minister Lavrov at some point next week.

The appetite for riskier assets now puts the buck under some selling pressure amidst the pick-up in US yields across the curve following a couple of sessions with losses.

In the US calendar, the Conference Board will publish the Leading Index for the month of January, seconded by Existing Home Sales. In addition, Chicago Fed C.Evans (2023 voter, centrist), FOMC C.Waller (permanent voter, centrist), NY Fed J.Williams (permanent voter, centrist) and FOMC L.Brainard (permanent voter, dovish) are all due to speak later in the session.

What to look for around USD

Better news on the Russia-Ukraine-US standoff lends some support to the risk-associated universe and weighs on the dollar at the end of the week. However, the recent corrective downside in the buck was deemed as temporary only, as the positive stance in the dollar remains underpinned by the current elevated inflation narrative as well as the probability of a more aggressive start of the Fed’s normalization of its monetary conditions. Looking at the longer run, and while the constructive outlook for the greenback appears well in place for the time being, recent hawkish messages from the BoE and the ECB carry the potential to undermine the expected move higher in the dollar in the next months.

Key events in the US this week: CB Leading Index, Existing Home Sales (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict under the Biden administration. Debt ceiling issue.

US Dollar Index relevant levels

Now, the index is losing 0.05% at 95.75 and a break above 96.43 (weekly high Feb.14) would open the door to 97.44 (2022 high Jan.28) and finally 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.67 (weekly low Feb.16) seconded by 95.17 (weekly low Feb.10) and then 95.13 (weekly low Feb.4).