US Dollar Index treads water around 106.30 ahead of CPI

• The index trade within a narrow range near 106.30.
• Price action in US yields also remain apathetic near Tuesday’s close.
• All the attention will be on the release of US inflation figures later in the day.

The greenback, when tracked by the US Dollar Index (DXY), navigates a tight range in the low-106.00s on Wednesday.

US Dollar Index focused on CPI

The index keeps the bearish performance so far this week amidst the resurgence of the appetite for the risk complex, while investors appear to have already digested July’s strong Payrolls figures and continue to price in a 75 bps rate hike at the next Fed gathering in September.

In the meantime, prudence still prevails among market participants ahead of the publication of US inflation figures for the month of July, due later in the NA session, while US yields remain flat and trade close to Tuesday’s closing levels.

Other than the CPI release, the US docket will include the usual weekly MBA Mortgage Applications, Wholesale Inventories, the EIA’s report on US crude oil inventories and the Monthly Budget Statement.

What to look for around USD

The index remains under pressure and trades near the 106.00 region ahead of key releases in the US calendar.

The dollar, in the meantime, is poised to extend the current range bound theme amidst persistent cautiousness pre-US CPI and prospects for the continuation of the aggressive normalization by the Federal Reserve.

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 106.27 and a breach of 105.04 (monthly low August 2) would expose 103.67 (weekly low June 27) and finally 103.5 (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).