USD Index extends the recovery and approaches 103.00

• The index accelerates gains and flirts with the 103.00 area.
• US yields remain on the defensive on Wednesday.
• Retail Sales, Producer Prices, Fedspeak next of note in the docket.

The USD Index (DXY), which tracks the greenback vs. a basket of its main rivals, climbs to multi-day highs near the 103.00 mark on Wednesday.

USD Index focuses on key data

The index resumes the uptrend and leaves behind Tuesday’s downtick mainly on the back of the pronounced sell-off of the Japanese yen in the wake of the BoJ monetary policy meeting earlier in the session.

On this, the BoJ left no room for surprises and voted unanimously to keep the current ultra-accommodative stance unchanged vs. markets’ speculation of another potential tweak of the Yield Curve Control (YCC) or even the announcement of an exit strategy.

US yields, in the meantime, remain tilted to the downside ahead of the release of key results in the US docket as well as speeches by FOMC’s Bostic, Bullard, Harker and Logan.

In the docket, Producer Prices and Retail Sales will take centre stage seconded by MBA Mortgage Applications, Industrial Production, Business Inventories, the NAHB Housing Market Index, TIC Flows and the Fed’s Beige Book.

What to look for around USD

The dollar keeps marching north and already trades at shouting distance from the key 103.00 barrier when tracked by the USD Index (DXY).

The idea of a probable pivot in the Fed’s policy in the next months continues to weigh on the greenback and keeps the price action around the DXY depressed. This view, however, also comes in contrast to the hawkish message from the latest FOMC Minutes and recent comments from fed’s rate-setters, all pointing to the need to advance to a more restrictive stance and stay there for longer, at the time when rates are seen climbing above the 5.0% mark.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and the continuation of its hiking cycle.

Key events in the US this week: MBA Mortgage Applications, Producer Prices, Retail Sales, Industrial Production, NAHB Index, Business Inventories, Fed’s Beige Book, Net Long-term TIC Flows (Wednesday) – Building Permits, Housing Starts, Philly Fed Manufacturing Index, Initial Jobless Claims (Thursday) – Existing Home Sales (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Prospects for extra 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 trade conflict.

USD Index relevant levels

Now, the index is gaining 0.26% at 102.65 and faces the next hurdle at the weekly high at 102.89 (January 18) followed by 105.63 (monthly high January 6) and then 106.43 (200-day SMA). On the downside, the breach of 101.77 (monthly low January 16) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level).