US Dollar Index appears capped around 94.00 ahead of data

• The index reversed two daily advances in a row on Wednesday.
• US 10y yields remain side-lined around 1.62%, 2y approach 0.50%.
• Durable Goods Orders, Trade Balance next of note in the docket.

The greenback, when gauged by the US Dollar Index (DXY), gives away part of the recent advance and returns to the vicinity of 93.80 midweek.

US Dollar Index focuses on data

After two consecutive daily advances, the index now shows some weakness and fades further Tuesday’s spike to the area just above the 94.00 barrier.

The ongoing knee-jerk in the buck came in spite of the move higher in US yields, particularly in the front end, where the 2y approach the 0.50% yardstick, levels last seen in March 2020. The belly of the curve, in the meantime, hovers around 1.61% and the long end extends the corrective drop to the 2.03% area.

Tuesday’s better-than-expected results from the Conference Board’s Consumer Confidence gave extra legs to the greenback, reinforced the optimism around the economic recovery and help relegating inflation fears and speculations of the start of the tapering process in the near term.

In the US calendar, Durable Goods Orders will be in the centre of the debate seconded by weekly Mortgage Applications by MBA and advanced Goods Trade Balance figures and Wholesale Inventories.

What to look for around USD

The index recedes some ground following the lack of follow through after Tuesday’s surpass of the 94.00 hurdle. The positive performance of US yields, supportive Fedspeak regarding the start of the tapering process as soon as in November or December (also bolstered by latest comments by Chief Powell) and the rising probability that high inflation could linger for longer remain as key factors behind the constructive outlook for the buck in the near-to-medium term.

Key events in the US this week: Durable Goods Orders, Advanced Trade Balance (Wednesday) – Flash Q3 GDP, Initial Claims, Pending Home Sales (Thursday) – PCE, Core PCE, Personal Income/Spending, Final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Discussions around 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 0.12% at 93.85 and a break above 94.17 (weekly high Oct.18) would open the door to 94.56 (2021 high Oct.12) and then 94.74 (monthly high Sep.25 2020). On the flip side, the next down barrier emerges at 93.48 (monthly low October 25) followed by 93.30 (55-day SMA) and finally 92.98 (weekly low Sep.23).