USD Index drops to multi-month lows near 106.00

• The index resumes the downside and flirts with 106.00.
• The appetite for the risk complex gathers extra steam on Tuesday.
• Producer Prices, Fedspeak take centre stage later in the NA session.

The greenback, in terms of the USD Index (DXY), resumes the leg lower and approaches the key support at 106.00 the figure on Tuesday.

USD Index focuses on data, Fedspeak

The index remains under pressure and now loses ground for the second week in a row after rapidly leaving behind Monday’s bullish attempt.

Indeed, the risk-on mood returns to the markets on turnaround Tuesday and puts the buck to the test once again, always on the back of further repricing of the likelihood that the Fed could slow the pace of the future interest rate hikes.

The above was also reinforced by Vice Chair L.Brainard at her discussion on the “Economic Outlook” on Monday.

So far, the chances of the Fed to hike by half percentage point at the December 14 meeting is now at nearly 81%, as per CME Group’s FedWatch Tool.

The resumption of the downtrend in the dollar is so far accompanied by a small decline in US yields across the curve.

In the US calendar, Producer Prices for the month of October will be in the limelight later in the session along with the speech by FOMC L.Cook (permanent voter, centrist) and the testimony from Vice Chair for Supervision M.Barr (permanent voter, centrist) before the Senate.

What to look for around USD

The index remains under heavy pressure, always stemming from the probability of a slower rate path in the next months by the Fed and its positive impact on the risk-associated universe.

In the meantime, investors’ repricing of a probable pivot in the Fed’s policy now emerges as a fresh and quite reliable source of weakness for the dollar, in line with a corrective decline in US yields across the curve.

Key events in the US this week: Producer Prices (Tuesday) - MBA Mortgage Applications, Retail Sales, Industrial Production, Business Inventories, NAHB Index, TIC Flows (Wednesday) - Building Permits, Initial Jobless Claims, Housing Starts, Philly Fed Index (Thursday) - CB Leading Index, Existing Home Sales (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 retreating 0.72% at 106.16 and the breakdown of 106.09 (monthly low November 15) would open the door to 104.89 (200-day SMA) and finally 104.63 (monthly low August 10). On the other hand, the next up barrier aligns at 109.10 (100-day SMA) seconded by 110.91 (55-day SMA) and then 113.14 (monthly high November 3). On the flip side,