USD Index extends the rebound to 105.50, focus on Fedspeak

• The index advances further and retakes 105.50.
• US yields look to extend the weekly recovery.
• Balance of Trade, Fedspeak take centre stage on Tuesday.

The USD Index (DXY), which tracks the greenback vs. a basket of its main competitors, manages to regain extra upside traction and reclaims the 105.50 region on turnaround Tuesday.

USD Index now looks at Fedspeak

The index advances for the second session in a row and maintains the optimism well and sound so far in the first half of the week, all amidst the knee-jerk in the risk complex and further recovery in US yields across different timeframes.

In the meantime, investors’ attention is expected to be on upcoming Fedspeak, particularly against the backdrop of now increasing speculation of potential interest rate cuts by the Federal Reserve to start as soon as around the summer of 2024.

In the US docket, September’s Balance of Trade figures are due seconded by the IBD/TIPP Economic Optimism index and Consumer Credit Change.

In addition, FOMC M. Barr (permanent voter, centrist), FOMC C. Waller (permanent voter, hawk), NY Fed J. Williams (permanent voter, centrist), Dallas Fed L. Logan (voter, hawk), Minneapolis Fed N. Kashkari (voter, centrist) and Chicago Fed A. Goolsbee (voter, centrist) are all due to speak later in the NA session.

What to look for around USD

The recent sharp corrective move in the index appears to have met some initial contention near 104.80 so far.

In the meantime, the dollar loses some composure despite the broad-based good health of the US economy and the inflation still running above the Fed’s target, while further cooling of the US labour market now appear to underpin a protracted impasse in the Fed’s current restrictive stance.

Key events in the US this week: Balance of Trade, Consumer Credit Change (Tuesday) – MBA Mortgage Applications, Wholesale Inventories (Wednesday) - Initial Jobless Claims, Chair Powell (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft or hard landing for the US economy. Speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China. Potential spread of the Middle East crisis to other regions.

USD Index relevant levels

Now, the index is up 0.26% at 105.52 and the breakout of 106.88 (weekly high October 26) could expose 107.34 (2023 high October 3) and finally 107.99 (weekly high November 21 2022). On the other hand, initial support is seen at 104.84 (monthly low November 6) ahead of 104.42 (weekly low September 11) and then 103.53 (200-day SMA).