US Dollar Index appears cautious and clings to 105.00

• DXY exchanges gains with losses around 105.00.
• US yields resume the upside as US markets return to normality.
• May’s Factory Orders next on tap in the NA session.

The greenback, in terms of the US Dollar Index (DXY), trades without a clear direction around the 105.00 neighbourhood on turnaround Tuesday.

US Dollar Index looks weak amidst risk-on mood

The index trades virtually unchanged from Monday’s close just above the 105.00 mark, as US markets slowly return to the normal activity following Monday’s Independence Day holiday.

The dollar so far appears decoupled from the resumption of the upside bias in US yields, which look underpinned by the current sentiment favouring the risk-associated assets.

Further consolidation should not be ruled out around the buck in the next days in a week dominated by the publication of the FOMC Minutes on Wednesday and the release of June’s Nonfarm Payrolls on Friday.

Later in the NA session, Factory Orders for the month of May will be the sole release in the docket seconded by short-term Bill Auctions.

What to look for around USD

The continuation of the risk-on sentiment bolsters the lack of traction in the index, which remains side-lined around the 105.00 zone for the time being.

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: Factory Orders (Tuesday) – MBA Mortgage Applications, Final Services PMI, ISM Non-Manufacturing, FOMC Minutes (Wednesday) – ADP Report, Initial Claims, Balance of Trade (Thursday) – Non-farm Payrolls, Unemployment Rate, Wholesale Inventories, Consumer Credit Change (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 down 0.05% at 105.09 and faces the next support at 103.67 (weekly low June 27) seconded by 103.41 (weekly low June 16) and finally 101.29 (monthly low May 30). On the other hand, 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).