USD Index climbs to fresh tops near 103.60 ahead of data

• The index extends its rally to the 103.60 region.
• The greenback advances as investors digest the FOMC Minutes.
• Weekly Claims, Philly Fed index next of note in the docket.

The greenback, when tracked by the USD Index (DXY), maintains the bullish stance well in place and advances to new multi-week highs around 103.60 ahead of the opening bell in the old continent on Thursday.

USD Index bolstered by FOMC, looks at data

The index continues its relentless march north and extends further its recent breakout of the critical 200-day SMA (103.21).

The so far multi-week rally in the dollar appears well propped up by the equally strong rebound in US yields across different maturities, all against the backdrop of rising speculation that the Federal Reserve might keep its restrictive monetary stance for longer than initially anticipated.

The resilience of the US economy, as seen in recent results from key fundamentals, sustains that view despite current disinflationary pressures and some cracks in the (still tight) labour market.

Further strength in the buck also appeared following the publication of the FOMC Minutes late on Wednesday. On this, most of the participants shared the opinion that there are significant potential risks that could lead to higher inflation. They noted that the current level of inflation was considered too high and believed that additional proof was needed to be confident that the pressures driving prices upward were truly diminishing. The prevailing feeling among the majority of participants was that, due to the risks associated with inflation, it might be necessary to raise interest rates further.

Later in the US calendar, the usual weekly Initial Jobless Claims are due, seconded by the always relevant Philly Fed Manufacturing Index and the Leading Index tracked by the Conference Board.

What to look for around USD

The index keeps the bid bias well and sound and climbs to fresh tops further north of 103.00 the figure in the second half of the week, always amidst higher US yields and persistent weakness in the risk complex.

Extra support for the dollar also comes from the good health of the US economy, which seems to have reignited the narrative around the tighter-for-longer stance from the Federal Reserve.

Furthermore, the idea that the dollar could face headwinds in response to the data-dependent stance from the Fed against the current backdrop of persistent disinflation and cooling of the labour market appears to be losing traction as of late.

Key events in the US this week: MBA Mortgage Applications, Building Permits, Housing Starts, Industrial Production, FOMC Minutes (Wednesday) – Initial Jobless Claims, Philly Fed Manufacturing Index, CB Leading Index (Thursday).

Eminent issues on the back boiler: Persistent debate over a soft or hard landing for the US economy. Incipient speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China.

USD Index relevant levels

Now, the index is up 0.10% at 103.55 and the breakout of 103.59 (monthly high August 16) would open the door to 104.69 (monthly high May 31) and finally 105.88 (2023 high March 8). On the flip side, initial support emerges at 102.34 (55-day SMA) followed by 101.74 (monthly low August 4) and then 100.55 (weekly low July 27).