USD Index extends the correction below 106.00, looks at PCE data, shutdown

• The index adds to Thursday’s decline below 106.00.
• US yields also correct lower from recent multi-year tops.
• US PCE, Final Consumer Sentiment take centre stage.

The greenback, when tracked by the USD Index (DXY), adds to Thursday’s pullback and drops further south of the 106.00 support at the end of the week.

USD Index focused on US data

The index retreats for the second session in a row so far on Friday, coming under selling pressure after hitting 2023 peaks near 106.80 (September 27).

The move lower in the dollar comes in response to recent overbought conditions of the index (as per the daily RSI well past the 70 threshold), some profit taking and a mild recovery in the appetite for the risk complex.

Other than that, the monetary policy background remains unchanged, while concerns over the likelihood of a federal government shutdown also appears to be weighing on the greenback, as the September 30 deadline looms closer.

Interesting day in the US docket, as inflation tracked by the PCE and Core PCE will be in the limelight seconded by Personal Income, Personal Spending, advanced Goods Trade Balance and the final gauge of the Michigan Consumer Sentiment.

In addition, NY Fed John Williams (permanent voter, centrist) is due to speak.

What to look for around USD

The knee-jerk in the greenback appears to be gathering traction and already breaks below the 106.00 support on Friday.

In the meantime, support for the dollar keeps coming from the good health of the US economy, which at the same time appears underpinned by the renewed tighter-for-longer stance narrative from the Federal Reserve.

Key events in the US this week: PCE, Core PCE, Personal Income, Personal Spending, Advanced Goods Trade Balance, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persevering 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 losing 0.33% at 107.77 and faces initial support at 104.42 (weekly low September 11) ahead of 103.09 (200-day SMA) and then 102.93 (weekly low August 30). On the other hand, a breakout of 106.83 (2023 high September 27) would open the door to 107.19 (weekly high November 30, 2022) and finally 107.99 (weekly high November 21 2022).