US Dollar Index drops further and tests the 94.60 region ahead of data

• DXY tumbles to multi-week lows near the 94.60 area.
• US yields regain some traction at the end of the week.
• US Retail Sales take centre stage later in the NA session.

The greenback, in terms of the US Dollar Index (DXY), sheds further ground and drops to levels last seen in early November around 94.60, an area coincident with the 100-day SMA.

US Dollar Index looks weaker, focuses on data

The index trade on the defensive since Tuesday. Indeed, the dollar has intensified the decline after US inflation rose to levels last seen in 1982 at 7% YoY in December, while further downside pressure came following the breakdown of the 200-week SMA (95.07) and the 4m support line around 95.15.

The mild rebound in US yields does nothing to reverse the downtrend in the buck so far on Friday, with remains at the mercy of the strong improvement in the appetite for the riskier assets.

Interesting session in the US calendar, with Retail Sales emerging as the salient release seconded by Industrial/Manufacturing Production, Capacity Utilization, Business Inventories and the flash print of the Consumer Sentiment for the month of January. In addition, NY Fed J.Williams (permanent voter, centrist) is due to speak.

What to look for around USD

The index loses the grip further and sinks to fresh 2-month lows in the vicinity of 94.60, always amidst the strong performance in the risk complex and despite higher yields. On the supportive side for the greenback, Fed-speakers still point to a sooner-than-anticipated lift-off (likely in March), the persistent elevated inflation, higher yields and the solid performance of the US economy.

Key events in the US this week: Retail Sales, Industrial Production, Flash Consumer Sentiment, Business Inventories (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 losing 0.20% at 94.67 and a break above 95.71 (55-day SMA) would open the door to 96.46 (2022 high Jan.4) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 94.62 (2022 low Jan.14) seconded by 93.27 (monthly low Oct.28 2021) and then 93.12 (200-day SMA).