US Dollar Index: Bulls lose conviction ahead of 107.00

• The index loses momentum following the bull run to 106.80.
• US yields shed part of Friday’s strong advance.
• The 3-month/6-month Bill Auctions are only due in the docket.

The greenback, in terms of the US Dollar Index (DXY), trades with marginal losses following another unsuccessful attempt to revisit the 107.00 mark earlier in the session on Monday.

US Dollar Index stays capped by 107.00

The index exchanges gains with losses in the mid-106.00s and keeps the daily lack of direction well in place in the European midday, as market participants appear to have already digested Friday’s solid print from Nonfarm Payrolls (+528K jobs).

The inconclusive price action in the greenback so far comes amidst the mild drop in US yields across the curve after the post-NFP upside recorded at the end of last week.

Nothing scheduled data wise in the US docket other than a short-term bill auction. It is worth recalling that the release of inflation figures measured by the CPI (Wednesday) will be the salient event this week.

What to look for around USD

The index comes under pressure after advancing to the boundaries of the 107.00 mark soon after solid results from US Nonfarm Payrolls more than doubled its initial estimates in July.

The outlook for the dollar has improved somewhat after the index bottomed out near the 105.00 yardstick (August 2) in response to recession-induced weakness, all following the release of the flash Q2 US GDP figures. However, Friday’s stellar figures from July’s Payrolls reignited the prospects for another large rate hike (75 bps?) at the September event, opening the door to extra gains in the very near term.

Looking at the macro scenario, the dollar appears propped up by 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, Inflation Rate, Wholesale Inventories (Wednesday) Initial Claims, Producer Prices (Thursday) – Flash Consumer Sentiment (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 losing 0.02% at 106.55 and a breach of 105.04 (monthly low August 2) would expose 103.67 (weekly low June 27) and finally 103.38 (100-day SMA). On the upside, a breakout of 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002).