USD Index comes under further pressure below 112.00

• The index loses further momentum and breaks below 112.00.
• US yields trade in a mixed bias so far on turnaround Tuesday.
• Industrial Production, NAHB Index next of note in the docket.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main rival currencies, adds to the pessimism seen at the beginning of the week and drops below 112.00.

USD Index looks to data, risk trends

The index sheds ground for the second session in a row so far on Tuesday against the backdrop of further improvement in the risk-associated universe and the mixed performance in US yields.

Indeed, and amidst the absence of strong catalysts and with a 75 bps rate hike by the Fed almost fully priced in at the November 2 meeting, price action around the dollar has succumbed to the dynamic of the broad risk appetite trends. That said, US yields along the curve trade within marginal ranges, although they manage well to keep navigating the upper end of the recent range and near multi-year highs. 

Later in the NA session, Industrial Production figures will take centre stage seconded by the NAHB Housing Market Index and TIC Flows. In addition, Minneapolis Fed N.Kashkari (2023 voter, dove) is due to speak.

What to look for around USD

The corrective decline in the dollar remains unchanged in the first half of the week against the backdrop of the resurgence of the appetite for the risk-linked galaxy.

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: Industrial Production, NAHB Housing Market Index, TIC Flows (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts, Fed Beige Book (Wednesday) – Initial Jobless Claims, Philly Fed Index, Existing Home Sales, CB Leading Index (Thursday).

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 retreating 0.08% at 111.97 and the breakdown 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). On the upside, the immediate hurdle comes at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).