US Dollar Index looks for direction around 94.00 ahead of data, Fedspeak

• DXY trades within a tight range near the 94.00 mark.
• US yields regain some traction and reverse recent losses.
• Initial Claims, producer Prices, Fedspeak next on tap.

The greenback, in terms of the US Dollar Index (DXY), attempts some consolidation in the lower end of the weekly range around the 94.00 neighbourhood.

US Dollar Index focused on data

The index looks to recover some ground following Wednesday’s strong pullback, always hanging on near the 94.00 zone.

In the meantime, yields in the belly of the curve and in the back end manage to reverse part of the recent weakness, while the short end still navigates the upper end of the range near 18-month highs, particularly following the latest release of US inflation figures (+5.4% YoY in September).

No surprises from the release of the FOMC Minutes on Wednesday, with members in general favouring the start of the tapering process in November and to be finished at some point in mid-2022. In addition, members mostly coincided that the threshold for further substantial progress had been reached.

In the docket, the usual weekly Claims are due seconded by Producer Prices and speeches by Atlanta Fed R.Bostic (voter, centrist), Richmond Fed T.Barkin (voter, centrist) and NY Fed J.Williams (permanent voter, centrist).

What to look for around USD

The index corrected sharply lower to the 94.00 mark after hitting new 2021 highs past 94.50 earlier on the week along with the move lower in US yields. Positive news from the debt-ceiling and inflation jitters sponsored the selloff in the bonds market seen in past sessions and propelled yields to fresh tops, lending extra legs to the buck at the same time. Looking beyond the immediate term, the dollar remains underpinned by markets’ adjustment to prospects for a “soon” start of the tapering process, probable rate hikes at some point during next year and the rising view that elevated inflation could last more than initially expected.

Key events in the US this week: Initial Claims (Thursday) – Retail Sales, flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Biden’s multi-billion Build Back Better plan. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is losing 0.01% at 93.99 and a break above 94.56 (2021 high Oct.12) would open the door to 94.74 (monthly high Sep.25 2020) and then 94.76 (200-week SMA). On the flip side, the next down barrier emerges at 93.82 (20-day SMA) followed by 93.67 (monthly low Oct.4) and finally 92.98 (weekly low Sep.23).