US Dollar Index resumes the upside and surpasses 95.70

• DXY reverses Monday’s downtick and retakes 95.70 and above.
• Higher US yields support the move higher in the dollar.
• Trade Balance, NFIB Index, IBD/TIPP Index next on tap.

The greenback fades the pessimism seen at the beginning of the trading week and resumes the upside to the 95.70/75 band when tracked by the US Dollar Index (DXY) on turnaround Tuesday.

US Dollar Index up on yields, Fed

Following Friday’s lows in the vicinity of 95.10, the index embarked on a corrective upside with the immediate target at the 96.00 barrier so far. The reversion of the January-February sharp selloff comes on the back of the relentless move higher in US yields.

Indeed, the latest Payrolls figures added to the rising speculation of a more aggressive lift-off by the Federal Reserve as soon as at the March FOMC event, although this view contrasts with opinions of some Fed’s rate-setters, who feel more inclined to a more gradual start of the normalization of the monetary conditions (25 bps hike vs. 50 bps hike).

In the meantime, yields in the short end of the curve approach the 1.35% level for the first time since February 2020, the 10y benchmark note surpasses 1.95% - levels last traded in August 2019 – and the 30y note flirts with the 2.25% region, an area last visited in June 2021.

In the US docket, Balance of Trade figures are due later seconded in relevance by the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index.

What to look for around USD

The dollar regained some poise in the wake of the healthy results from the Nonfarm Payrolls for the month of January. While the constructive outlook for the greenback remains well in place for the time being, recent hawkish messages from the BoE and the ECB carry the potential to slow the pace of a move higher in the index in the next months. The view of a stronger dollar remains, in the meantime, underpinned by higher yields, persistent elevated inflation, supportive Fedspeak and the solid pace of the US economic recovery.

Key events in the US this week: Balance of Trade (Tuesday) - Wholesale Inventories, MBA Mortgage Applications (Wednesday) - CPI, Initial Claims (Thursday) - Flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Fed’s rate path this year. US-China trade conflict under the Biden administration. Debt ceiling issue. Escalating geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is gaining 0.09% at 95.56 and a break above 96.07 (55-day SMA) would open the door to 97.44 (2022 high Jan.28) and finally 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.13 (weekly low Feb.4) seconded by 95.00 (round level) and then 94.62 (2022 low Jan.14).