US Dollar Index adds to recent losses and retests 95.40 ahead of data

• DXY extends the decline to the 95.40 region on Thursday.
• US yields correct further lower from recent tops.
• Initial Claims, the Philly Fed Index are next in the US docket.

The greenback extends the bearish correction from recent tops and recedes to the 95.40 region when gauges by the US Dollar Index (DXY).

US Dollar Index looks to yields, data

The index loses ground for the second session in a row on Thursday following the continuation of the corrective downside in US yields across the curve. Despite the current knee-jerk in yields, they manage well to keep the trade in the area of recent tops.

In the meantime, the Fed’s potential lift-off in the month of March narrative continues to prevail as the main catalyst for the price action around the buck, always propped up by persevering elevated inflation and amidst the strong economic recovery in the US.

In the docket, the usual weekly Claims are due seconded by the always important Philly Fed Manufacturing Index and Existing Home Sales.

What to look for around USD

The index came under some downside pressure soon after recent peaks near 95.90. In fact, the recovery from as low as the 94.60 area (January 14) almost fully reclaimed the ground lost earlier in the new year, always on the back of the sharp move higher in US yields, firmer speculation of a sooner move on rates by the Federal Reserve and supportive Fedspeak.

Key events in the US this week: Initial Claims, Philly Fed Index, Existing Home Sales (Thursday).

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 0.12% at 95.50 and a break above 95.83 (weekly high Jan.18) 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 94.78 (100-day SMA) followed by 94.62 (2022 low Jan.14) and then 93.27 (monthly low Oct.28 2021).