US Dollar Index: Bears remain in control well below 108.00

• The index extends the corrective downside to multi-day lows.
• The appetite for the risk complex picks up pace on Monday.
• The NAHB Index, TIC Flows next on tap in the NA session.

The greenback, when tracked by the US Dollar Index (DXY), remains under the influx of sellers and visits the area of multi-session lows in the 107.50 zone at the beginning of the week.

US Dollar Index weak on risk-on mood

The index adds to Friday’s pullback and starts the new trading week on the back foot against further improvement in the risk complex. Indeed, the dollar clinches the second daily decline in a row following last week’s cycle peaks north of the 109.00 mark (July 14).

The dollar appears offered as market participants continue to evaluate recent comments from Fed’s rate setters, who somewhat discarded a full point interest rate hike at the July 27 event.

Adding to the upbeat tone among investors, long-term inflation expectations are expected to ease in July, as per the advanced figures from the U-Mich Index published on Friday.

In the US data sphere, the NAHB Index is due later seconded by TIC Flows and 3-month/6-month Bill Auctions.

What to look for around USD

The index comes under pressure following new cycle highs past 109.00 on July 14. It is worth noting, however, that the recent sharp advance in the dollar seems to have come largely in response to the deterioration of the outlook for the euro on the back of persistent uncertainty around a potential recession in the old continent.

Further support for the dollar is expected to come from the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: NAHB Index, TIC Flows (Monday) – Housing Starts, Building Permits (Tuesday) – MBA Mortgage Applications, Existing Home Sales (Wednesday) – Initial Claims, Philly Fed Index (Thursday) – Flash PMIs (Friday).

Eminent issues on the back boiler: Hard/soft/softish? 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 0.40% at 107.55 and faces next contention at 107.37 (weekly low July 18) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 109.29 (2022 high July 15) would expose 109.77 (monthly high September 2002) and then 110.00 (round level).