US Dollar Index falters above 94.40, reverses recent gains

• DXY fades part of Monday’s advance and trades around 94.30.
• US cash market returns to normality following Monday’s inactivity.
• NFIB Index, JOLTs Job Openings next on tap in the US calendar.

The greenback, in terms of the US Dollar Index (DXY) gives away part of the optimism witnessed at the beginning of the week.

US Dollar Index remains focused on US CPI, FOMC Minutes

The index extends the recent choppy activity so far on Tuesday and manages well to keep business above the key 94.00 mark.

In the meantime, the dollar sheds some ground gained on Monday amidst the return to the normal activity in the US bonds market, where yields of the key 10-year benchmark remain firm above 1.60% while the short end of the curve eases from recent tops near 0.35%.

On the more macro view, the debate around the debt ceiling appears to have now entered into an impasse following last week’s agreement to extend the federal government funding until December. On another front, the energy crisis particularly in Asia coupled with supply constraints continues to fuel concerns around growth prospects and inflation.

A light docket in the US will see the NFIB Index and the JOLTs Job Openings, while QE tapering is expected to remain in centre stage in speeches by FOMC’s R.Clarida (permanent voter, dovish) and Atlanta Fed R.Bostic (voter, centrist).

What to look for around USD

The index resumed the upside on Monday, although a move beyond 2021 highs around 94.50 still remains elusive. Positive news from the debt-ceiling and inflation jitters sponsored the selloff in the bonds market seen in past sessions and propeled yields to fresh tops, lending extra legs to the buck at the same time. Looking beyond the immediate term, the dollar remains underpinned by markets’ adjustment to prospects for a “soon” start of the tapering process, probable rate hikes at some point during next year and the rising view that elevated inflation could last more than initially expected.

Key events in the US this week: Inflation tracked by the CPI, FOMC Minutes (Wednesday) – initial Claims (Thursday) – Retail Sales, flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Biden’s multi-billion Build Back Better plan. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is losing 0.05% at 94.30 and a break above 94.50 (2021 high Sep.30) would open the door to 94.74 (monthly high Sep.25 2020) and then 94.76 (200-week SMA). On the flip side, the next down barrier emerges at 93.67 (monthly low Oct.4) followed by 92.98 (weekly low Sep.23) and finally 91.94 (monthly low Sep.3).