US Dollar Index resumes the upside and retargets 109.00

• The index leaves behind the recent pullback and looks to 109.00.
• US yields extend the upside momentum on Wednesday.
• Durable Goods Orders next of relevance in the US docket.

The US Dollar Index (DXY), which gauges the greenback vs. a basket of its main competitors, regains the upside bias and targets the 109.00 neighbourhood midweek.

US Dollar Index now looks to data releases

The index regains ground lost following Tuesday’s moderate pullback, as the sentiment around the risk complex remains sour amidst expectations of further tightening by the Fed ahead of the Jackson Hole Symposium and the speech by Chair Powell on Friday.

Indeed, investors continue to debate the size of the next rate hike by the Fed at the September meeting, where the probability of a 50 bps or a 75 bps rate raise appears stable around 50% according to CME Group’s FedWatch Tool.

Later in the US docket, usual MBA Mortgage Applications are due in the first turn seconded by Durable Goods Orders, Pending Home Sales and the weekly report on US crude oil stockpiles by the EIA.

What to look for around USD

Hawkish rhetoric from Fed’s rate-setters coupled with deteriorating sentiment in the risk complex propelled the index back above the 109.00 barrier in past sessions.

Bolstering the dollar’s strength appears the firm 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.

DXY, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, namely a 50 bps or 75 bps hike in September.

Looking at the macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: MBA Mortgage Applications, Durable Goods Orders, Pending Home Sales (Wednesday) – Jackson Hole Symposium, Advanced Q2 GDP Growth Rate, Initial Claims (Thursday) - Jackson Hole Symposium, PCE, Personal Income, Personal Spending, Fed Powell, Final Consumer Sentiment (Friday) - Jackson Hole Symposium (Saturday).

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.

US Dollar Index relevant levels

Now, the index is gaining 0.19% at 108.71 and a breakout of 109.29 (2022 high July 15) would aim for 109.77 (monthly high September 2002) and then 110.00 (round level). On the other hand, immediate support comes at 106.12 (55-day SMA) followed by 104.63 (monthly low August 10) and then 104.36 (100-day SMA).