USD Index rebounds from recent lows and retests 110.50 ahead of data

• The index reverses the recent pullback and advances to 110.50.
• US yields attempt a mild recovery across the curve.
• ADP Report, ISM Non-Manufacturing take centre stage in the docket.

The greenback regains the smile following the recent sharp decline and retakes the 110.50 region when gauged by the USD Index (DXY) on Wednesday.

USD Index now looks to data

The index picks up some pace and partially reverses two consecutive daily drops amidst some loss of momentum in the risk complex in light of the recent needle-like rebound, particularly in the euro and the British pound.

The recovery in the buck so far comes in tandem with a tepid bullish attempt in US yields across after two consecutive sessions closing with gains, especially in the short end and the belly of the curve.

Interesting calendar in the US later on Wednesday will see the usual weekly MBA Mortgage Applications due in the first turn seconded by the ADP Employment Change Report for the month of September, Balance of Trade results, final S&P Global Services PMI and the ISM Non-Manufacturing.

In addition, Atlanta Fed R.Bostic (2024 voter, hawk) is also due to speak.

What to look for around USD

A hint of a recovery seems to have emerged around the dollar midweek after some decent support appears to have turned up near the 110.00 neighbourhood.

While the near-term outlook for the dollar looks somewhat dented, the firmer 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 continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: MBA Mortgage Applications, ADP Employment Change, Balance of Trade, Final Services PMI, ISM Non-Manufacturing (Wednesday) – Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change, Wholesale Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.28% at 110.51 and faces the next up barrier at 114.76 (2022 high September 28) seconded by 115.00 (round level) and then 115.32 (May 2002 high). On the other hand, a breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).