US Dollar Index advances further and approaches 107.00

• The improved sentiment in the dollar lifts the index near 107.00.
• US yields remain muted following the post-Minutes advance.
• Weekly Claims, Philly Fed Index, housing data, Fedspeak all due later.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rivals, adds to Wednesday’s advance and flirts with the 107.00 neighbourhood on Thursday.

US Dollar Index now looks to data

The index trades in the positive territory for the second session in a row so far on Thursday and thus extends the weekly rebound after bottoming out in the 104.60 region in the previous week.

Further recovery in the dollar continues to target the 107.00 barrier amidst the so far muted performance in US yields, as market participants keep digesting the release of the FOMC Minutes on Wednesday.

It is worth recalling that the FOMC Minutes reiterated that the Fed’s policy remains data-dependent at the time when members showed concerns that inflation could become entrenched and suggested to move into a more restrictive stance. Some participants were also worried about the effects of a probable overtightening.

Busy day in the US docket, as usual Initial Claims are due in the first turn seconded by the Philly Fed Manufacturing Index, the CB Leading Index, Existing Home Sales and speeches by Kansas City Fed E.George (voter, hawk) and Minneapolis Fed N.Kashkari (2023 voter, centrist).

What to look for around USD

The strong rebound in the dollar comes in response to some worsening conditions in the risk complex, which motivates DXY to now shift its attention to the 107.00 neighbourhood once again.

The dollar, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, namely a 50 bps or 75 bps hike in September.

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: Initial Claims, Philly Fed Manufacturing Index, CB Leading Index, Existing Home Sales (Thursday).

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.

US Dollar Index relevant levels

Now, the index is gaining 0.25% at 106.93 and 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). On the other hand, immediate support comes at 104.63 (monthly low August 10) seconded by 103.98 (100-day SMA) and finally 103.67 (weekly low June 27).