US Dollar Index regains the smile and targets 110.00 ahead of data

• The index resumes the upside and approaches 110.00.
• US yields extend the march north across the curve on Thursday.
• Retail Sales, Initial Claims, Philly Fed Index next of note in the docket.

The greenback, when measured by the US Dollar Index (DXY), regains some composure and advances to the proximity of the 110.00 yardstick on Thursday.

US Dollar Index looks to data

The index rapidly leaves behind Wednesday’s pullback and resumes the weekly uptrend, all against the backdrop of alternating risk appetite trends and a mild preference for the US dollar in the global markets.

The so far daily uptick in the greenback comes in tandem with further upside in US yields across the curve, where the 2-year note moves closer to the 3.85% level, an area last visited in November 2007.

The firmer note in the buck also appears underpinned by the conviction around a 75 bps rate hike by the Federal Reserve at its September 21 gathering, although there is still a nearly 30% chance of a full-point rate raise according to CME Group’s FedWatch Tool.

Busy day data wise in the US calendar, as weekly Claims, the Philly Fed Index and Retail Sales are due in the first turn seconded by Industrial Production, Capacity utilization and Business Inventories.

What to look for around USD

The index regains poise and resumes the post-CPI upside on Thursday, with the immediate target at the 110.00 neighbourhood.

Bolstering the dollar’s underlying positive stance appears the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market. This view was reinforced by Chair Powell’s speech at the Jackson Hole Symposium.

Looking at the more macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Retail Sales, Initial Claims, Philly Fed Manufacturing Index, Industrial Production, Business Inventories (Thursday) – Flash Michigan Consumer Sentiment, TIC Flows (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

US Dollar Index relevant levels

Now, the index is advancing 0.09% at 109.74 and a break above 110.01 (weekly high September 13) would expose 110.78 (2022 high September 7) and then 111.90 (weekly high September 6 2002). On the other hand, the next support emerges at 107.68 (monthly low September 13) followed by 107.58 (weekly low August 26) and finally 107.52 (55-day SMA).