US Dollar Index retreats from tops near 96.80, focus on geopolitics, data

• DXY advances to new 3-week peaks around 96.80.
• Demand for safe havens drag US yields lower on Thursday.
• Another Q4 GDP estimate, Initial Claims, New Home Sales next on tap.

The greenback, in terms of the US Dollar Index (DXY), pushes higher and retests the 96.80 region for the first time since late January.

US Dollar Index remains bid on rising risk aversion

The index advances for the second session in a row on Thursday, this time supported by firm inflows into the safe haven universe after Russia attacked Ukraine in the early hours of Thursday.

The move higher in the buck comes amidst the retracement in US yields in response to the re-emergence of the buying interest for bonds.

In the NA session, another revision of the US Q4 GDP is due seconded by the weekly report on Initial Claims, the Chicago Fed National Activity Index and New Home Sales for the month of January.

What to look for around USD

The appetite for safer assets continues to bolster the dollar and keeps the index on the positive footing on the back of the deterioration of the geopolitical scenario. The constructive view in the buck remains underpinned by the current elevated inflation narrative and the probability of a more aggressive start of the Fed’s normalization of its monetary conditions. In the longer run, 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: 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.

US Dollar Index relevant levels

Now, the index is gaining 0.46% at 96.64 and a break above 96.76 (monthly high Feb.23) 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).