US Dollar Index regains the smile and climbs to daily highs near 105.70

• The index reverses part of the recent pullback and tests 105.70.
• The risk aversion prevails in the global markets and bolsters the dollar.
• Chicago Fed C.Evans will speak later in the NA session.

The greenback manages to regain some balance and lifts the US Dollar Index (DXY) back to the 105.70 region on turnaround Tuesday.

US Dollar Index looks supported near 105.00

The index reverses the earlier drop to the proximity of the 105.00 mark and triggers a corrective upside to daily highs around 105.70 on Tuesday.

The move higher in the dollar comes on the back of the pick-up in the risk aversion mood among market participants, which appears also reflected in the persistent demand for bonds and the so far unabated downtrend in US yields across the curve.

Minor releases in the US calendar will include JOLTs Job Openings and the usual weekly report by the API on US crude oil inventories, all ahead of the speech by Chicago Fed C.Evans (2023 voter, centrist).

What to look for around USD

The index seems to have met some decent support near 105.00 so far in the first half of the week, as the re-emergence of some risk aversion underpins the ongoing recovery in the dollar.

The very-near-term outlook for the dollar has deteriorated somewhat in recent sessions, particularly following the latest US GDP figures and the prospects for further tightening by the Fed in the next months, which carry the potential to drag further the economy into the contraction territory.

Among the positives for the buck still emerge the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: MBA Mortgage Applications, Factory Orders, ISM Non-Manufacturing (Wednesday) – Balance of Trade, Initial Claims (Thursday) – Non-Farm Payrolls, Unemployment Rate, Consumer Credit Change (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 gaining 0.20% at 105.61 and a break above 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the flip side, initial support emerges at 105.04 (monthly low August 2) seconded by 104.79 (55-day SMA) and finally 103.67 (weekly low June 27).