US Dollar Index extends the correction below 104.00 ahead of Powell, data

• DXY breaks below the 104.00 mark amidst risk-on trade.
• US yields recover some ground lost on Tuesday.
• Chief Powell, Retail Sales next of note in the docket.

The greenback, when measured by the US Dollar Index (DXY), continues its corrective downside and breaches the key 104.00 support on turnaround Tuesday.

US Dollar Index focuses on Powell, data

The index sheds ground for the third consecutive session on Tuesday and extends further the rejection from last week’s 19-year tops around the 105.00 neighbourhood (May 13).

The marked move lower in the buck comes amidst further improvement in the appetite for riskier assets, which is also reflected in the bullish attempt seen in US yields along the curve.

In the meantime, investors will closely follow the speech by Chief Powell at the Wall Street Journal Future of Everything Festival in New York. In addition, the release of April’s Retail Sales will take centre stage seconded by Industrial Production, Capacity Utilization, Business Inventories, the NAHB Index and speeches by St. Louis Fed J.Bullard (voter, hawk), Philly Fed P.Harker (2023 voter, hawk) and Cleveland Fed L.Mester (voter, hawk).

What to look for around USD

The dollar met an initial decent resistance in the 105.00 neighbourhood so far this month, sparking a moderate correction lower afterwards. Supporting the buck appears investors’ expectations of a tighter rate path by the Federal Reserve and its correlation to yields, the current elevated inflation narrative and the solid health of the labour market. On the negatives for the greenback turn up the incipient speculation of a “hard landing” of the US economy as a result of the Fed’s more aggressive normalization.

Key events in the US this week: Retail Sales, Industrial Production, Business Inventories, NAHB Index, Fed Powell (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts (Wednesday) – Initial Claims, Philly Fed Manufacturing Index, Existing Home Sales, CB Leading Index (Thursday).

Eminent issues on the back boiler: Speculation of a “hard landing” of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is down 0.21% at 103.96 and faces the next support at 102.35 (low May 5) seconded by 99.81 (weekly low April 21) and then 99.57 (weekly low April 14). On the other hand, the break above 105.00 (2022 high May 13) would open the door to 105.63 (high December 11 2002) and finally 106.00 (round level).