US Dollar Index remains bid around 96.30 ahead of key data

• The index adds to Monday’s gains above the 96.00 mark.
• US yields seem to be taking a breather following the recent climb.
• The ISM Manufacturing will take centre stage later in the NA session.

The greenback, in terms of the US Dollar Index (DXY), adds to recent gains and challenges the area of recent tops around the 96.30 zone.

US Dollar Index looks to yields, data

The index advances for the second session in a row on turnaround Tuesday amidst alternating risk appetite trends and steady activity in US yields so far.

Indeed, the upside momentum in US yields witnessed at the beginning of the year seems to have entered in an impasse, although they keep navigating in the upper end of the range. On that, the closely watched 2y-10y spread rose to levels last seen in early December around 85 pts.

The recent and strong bounce in US yields follows the investors’ adjustment to the idea of 2-3 interest rate hikes by the Federal Reserve in the current year along with the strong performance of the US economy, which should underpin further the constructive outlook for the dollar in 2022.

Shifting to the US calendar, the ISM Manufacturing for the month of December will be the sole release later in the NA session seconded by the November JOLTs Job Openings.

What to look for around USD

The index managed to regain the 96.00 barrier and above at the beginning of the new year, almost exclusively on the back of the move higher in US yields. As markets slowly return to normality, the dollar is forecast to remain bolstered by the Fed’s intentions to hike the interest rates later in the year amidst persevering elevated inflation, supportive Fedspeak and the solid performance of the US economy.

Key events in the US this week: ISM Manufacturing PMI (Tuesday) - ADP Report, FOMC Minutes (Wednesday) - Initial Claims, ISM Non-Manufacturing, Factory Orders (Thursday) - Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Start of the Fed’s tightening cycle. US-China trade conflict under the Biden’s administration. Debt ceiling issue. Potential geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is gaining 0.02% at 96.23 and a break above 96.39 (weekly top Dec.29) would open the door to 96.90 (weekly high Dec.15) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 95.57 (monthly low Dec.31) followed by 95.51 (weekly low Nov.30) and then 94.96 (weekly low Nov.15).