USD Index regains the smile and the 111.00 barrier

• The index recoups part of the ground lost on Friday.
• The bounce in the dollar looks propped up by higher yields.
• Consumer Credit Change, Fedspeak next on tap in the US docket.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main competitors, manages to reverse part of the recent pessimism and regains the 111.00 barrier and above at the beginning of the week.

USD Index focuses on US CPI, risk

The index starts the week in a promising tone and retakes the area beyond the 111.00 barrier on Monday, as the recent sharp uptick in the risk-associated universe appears to be taking a breather.

The corrective upside in the dollar so far comes in tandem with a small recovery in US yields across the curve, as market participants continue to digest Friday’s release of the October’s Nonfarm Payrolls (+261K).

Moving forward and following the latest FOMC event, the week will be marked by the publication of the US inflation figures tracked by the CPI (Thursday) against the backdrop of a potential pivot in the Fed’s policy in in the next months.

In the docket, Consumer Credit Change figures for the month of September are due along with speeches by Boston Fed S.Collins (voter, centrist) and Cleveland Fed L.Mester (voter, hawkish).

What to look for around USD

The index looks to regain some poise following Friday’s collapse post-Nonfarm Payrolls to the area well south of the 111.00 yardstick.

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 buck.

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: Consumer Credit Change (Monday) – Midterm Elections (Tuesday) – MBA Mortgage Applications, Wholesale Inventories (Wednesday) – Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Preliminary Michigan Consumer Sentiment (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. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.06% at 110.86 and faces the initial resistance at 113.14 (monthly high November 3) followed by 113.88 (monthly high October 13) and then 114.76 (2022 high September 28). On the downside, the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).