US Dollar Index regains traction and tests the 93.40 region

• DXY regains the smile following Thursday’s pullback.
• US yields extend the rebound from recent lows.
• Core PCE, Personal Income/Spending, U-Mich next on tap.

The greenback, in terms of the US Dollar Index (DXY), attempts a rebound to the 93.40 zone following the sharp selloff recorded on Thursday.

US Dollar Index looks to yields, data

The index partially leaves behind the recent weakness and manages to find some dip buyers after bottoming out near 93.30 on the previous session.

The so far tepid bounce in the dollar comes on the back of and equally mild recovery in yields in the US cash markets. Indeed, yields in the front end of the curve keep navigating the area above 0.50%, while the belly and the longer-dated end advance for the second session in a row to levels past 1.60% and above 2.0%, respectively.

Thursday’s intense pullback in DXY was accompanied by the extra improvement in the risk complex, particularly after the ECB did not sound as dovish as many were expecting.

In the US data space, the focus of attention will likely be on the inflation figures gauged by the PCE/Core PCE seconded by Personal Income/Spending and the final Consumer Sentiment for the current month.

What to look for around USD

The index manages to regain the smile and bounces off recent lows near 93.30. The price action in the buck continues to closely follow the performance of US yields, while the recent pick-up in the appetite for riskier assets put the dollar under extra pressure. In the meantime, supportive Fedspeak regarding the start of the tapering process as soon as in November or December (also bolstered by comments by Chief Powell) and the rising probability that high inflation could linger for longer somewhat limit intermittent bouts of weakness in the currency.

Key events in the US this week: 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 gaining 0.10% at 93.45 and a break above 94.02 (weekly high Oct.26) would open the door to 94.17 (weekly high Oct.18) and then 94.56 (2021 high Oct.12). On the flip side, the next down barrier emerges at 93.27 (monthly low October 28) followed by 92.98 (weekly low Sep.23) and finally 92.86 (100-day SMA).