USD Index gives away earlier gains and challenges 113.00

• The index runs into some resistance around the 113.50 region.
• US yields look offered as the money market resumes the activity.
• Fed’s Harker, Mester are due to speak later in the NA session.

The greenback, in terms of the USD Index (DXY), loses some upside traction and puts the 113.00 neighbourhood to the test on turnaround Tuesday.

USD Index remains focused on US CPI

The index surrenders some ground after four consecutive daily advances and following the emergence of decent resistance in the mid-113.00s so far on Tuesday.

Indeed, the tepid improvement in the risk complex seems to have put the buck under some pressure soon after the opening bell in the old continent on Tuesday.

In addition, the knee-jerk in the dollar comes in tandem with some mild downside pressure in US yields across the curve, as the debt markets resume the activity following Monday’s Columbus Day holiday.

No data releases scheduled in the US docket on Monday should leave the attention to speeches by Philly Fed P.Harker (2023 voter, hawk) and Cleveland Fed L.Mester (voter, hawk).

What to look for around USD

The rally in the dollar appears to have met some decent hurdle in the 113.50 region so far on Tuesday.

In the meantime, 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, Producer Prices, FOMC Minutes (Wednesday) – Inflation Rate, Initial Jobless Claims (Thursday) – Retail Sales, Flash Michigan Consumer Sentiment, Business 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 up 0.02% at 113.19 and faces the next resistance at 113.50 (monthly high October 11) followed by 114.76 (2022 high September 28) 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).