US Dollar Index meets support near 108.00 post-data

• The index loses further ground and revisits 108.00.
• US Retail Sales expanded more than expected in June.
• Flash Consumer Sentiment comes next in the NA session.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, drops further to 2-day lows near 108.00 at the end of the week.

US Dollar Index now looks to U-Mich index

The index keeps the bearish note well and sound on Friday, although it remains en route to close the third consecutive week with gains on Friday.

In the meantime, the greenback remained apathetic following comments from St. Louis Fed Bullard, who now left a 100 bps rate hike on the table (he almost ruled out it on Thursday) and added that a “relatively soft landing” remains his base case.

The corrective downside in the dollar comes in response to the improvement in the sentiment surrounding the risk complex, while the overbought condition of DXY also adds to the ongoing correction.

The leg lower in the buck also comes after US headline Retail Sales expanded at a monthly 1.0% in June as well as Core Sales. In addition, Industrial Production contracted 0.2% MoM in June and expanded 4.2% over the last twelve months.

Later in the session, the flash Consumer Sentiment figures are due along with Business Inventories.

What to look for around USD

The index pushed higher and clinched new cycle highs past 109.00 on Thursday. It is worth noting, however, that the recent sharp move in the dollar comes largely in response to the accelerated decline in the euro and persistent uncertainty around a potential recession in the old continent.

Further support for the dollar is expected to come from the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: Retail Sales, Industrial Production, Flash Consumer Sentiment, Business Inventories (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 0.31% at 108.29 and faces next contention at 107.47 (July 13) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 109.29 (2022 high July 15) would expose 109.77 (monthly high September 2002) and then 110.00 (round level).