USD Index bounces off lows near 110.00, focus on elections

• The index attempts a bullish move after bottoming out near 110.00.
• The recovery in the dollar comes in tandem with higher yields so far.
• Investors’ attention is expected to remain on the US midterm elections.

The greenback, in terms of the USD Index (DXY), looks to leave behind part of the recent steep decline and rebounds from the 110.00 neighbourhood.

USD Index focuses on midterm elections

The index regains some poise and sets aside two daily sessions with losses after dropping to the vicinity of the key 110.00 zone earlier on turnaround Tuesday.

The impasse in the recent risk rally allows some recovery in the greenback, which also finds extra support in the move higher in US yields across the curve.

Later on Tuesday, market participants are expected to closely follow the US midterm elections, where the control of the Senate will be in the centre of the debate.

What to look for around USD

The index manages to stage a mild recovery after hitting 2-week lows in the proximity of the 110.00 region on Tuesday.

In the meantime, 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 continues to prop up the underlying positive tone in the buck.

Looking at the more macro scenario, the greenback also appears bolstered 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: Consumer Credit Change (Monday) – Midterm Elections (Tuesday) – MBA Mortgage Applications, Wholesale Inventories (Wednesday) – Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Preliminary Michigan Consumer Sentiment (Friday).

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

USD Index relevant levels

Now, the index is gaining 0.29% at 110.54 and faces the initial resistance at 113.14 (monthly high November 3) followed by 113.88 (monthly high October 13) and then 114.76 (2022 high September 28). On the downside, the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).