US Dollar Index advances to multi-day highs near 96.30 on geopolitics

• DXY extends the upside momentum to the vicinity of 96.30.
• Risk-off sentiment sustains the better note in the dollar.
• Consumer Confidence, Flash PMIs, housing data next on tap.

The greenback, when tracked by the US Dollar Index (DXY), accelerates gains further north of the 96.00 mark on the back of persistent risk-off sentiment.

US Dollar Index stronger on geopolitics

The index advances for the fourth consecutive session on Tuesday supported by the deterioration of the geopolitical scenario after military escalation in Eastern Ukraine.

Indeed, safe haven inflows accelerated after Russia’s V.Putin announced he will recognize the independence of Donetsk and Luhansk amidst rising speculation of a definitive invasion of the country in the short term.

The safe haven appeal of the US dollar remains well and sound on the back of the strong resurgence of the risk aversion, always underpinned by increasing uncertainty surrounding the Russia-Ukraine military conflict.

In the US cash markets, yields in the short end of the curve advance modestly vs. the continuation of the downtrend in the belly and the long end, as US markets gradually return to normality following Monday’s President’s Day holiday.

In the US docket, the Conference Board will release the Consumer Confidence gauge for the month of February seconded by Markit’s Flash Manufacturing/Services PMIs. In addition, house prices will be in the limelight following the publication of the FHFA’s House Price Index and the S&P/Case-Shiller Index. Finally, the Richmond Fed Manufacturing Index will close the daily calendar.

What to look for around USD

Risk aversion kicked in and supported the dollar via increasing buying interest in the safe haven universe. The index therefore reclaimed the 96.00 mark and beyond following fresh developments from the Russia-Ukraine front and amidst the continuation of the corrective downtrend in US yields. Other than by risk-off sentiment, the constructive view on the dollar remains propped up by the current elevated inflation narrative as well as the probability of a more aggressive start of the Fed’s normalization of its monetary conditions. Looking at the longer run, and while the constructive outlook for the greenback appears well in place for the time being, recent hawkish messages from the BoE and the ECB carry the potential to undermine the expected move higher in the dollar in the next months.

Key events in the US this week: House Price Index, Flash Manufacturing PMI, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications (Wednesday) – Advanced Q4 GDP, Initial Claims, New Home Sales (Thursday) – PCE, Durable Goods Orders, Personal Income/Spending, Pending Home Sales, Final Consumer Sentiment (Friday).

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

US Dollar Index relevant levels

Now, the index is gaining 0.02% at 96.15 and a break above 96.43 (weekly high Feb.14) 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 95.67 (weekly low Feb.16) seconded by 95.17 (weekly low Feb.10) and then 95.13 (weekly low Feb.4).