USD Index: Bullish move runs out of steam near 110.60

• The daily rebound in the dollar falters around 110.60.
• NIFB Business Optimism Index eases to 91.3 in October.
• Investors’ attention remains on the midterm elections on Tuesday.

The dollar’s recovery appears to be losing some momentum after reaching daily highs around 110.60 when tracked by the USD Index (DXY) on turnaround Tuesday.

USD Index looks at midterm elections

The index clings to its daily gains north of the 110.00 region on Tuesday, looking to finally set aside two consecutive daily retracements and embark on a more serious rebound.

The dollar trims part of its advance along with a tepid retracement in US yields across the curve, while market participants remain cautious as the US midterm elections are under way.

In the US data space, the NIFB Business Optimism Index receded a tad to 91.3 in October (from 92.1), while the IBD/TIPP Economic Optimism index is due later ahead of the weekly report by the API on US crude oil inventories in the week to November 4.

What to look for around USD

The index manages to stage a mild recovery after hitting 2-week lows in the proximity of the 110.00 region 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 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: US midterm elections. 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 0.07% at 110.29 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).