US Dollar Index corrects lower and retests 95.00

• DXY starts the week on the negative footing near 95.00.
• US yields begin Monday’s session on the defensive along the curve.
• NY Empire State Index, short-term note Auctions next on tap.

The greenback corrects lower and revisits the 95.00 neighbourhood when gauged by the US Dollar Index (DXY) on Monday.

US Dollar Index looks to yields, data

The index loses further momentum and flirts with the 95.00 area at the beginning of the week amidst the weaker note in US yields, some profit taking mood and the generalized appetite for riskier assets.

Indeed, US yields add to the recent decline in both the front and the belly of the curve, while the long end reverse three consecutive sessions with losses.

Investors, in the meantime, continue to digest Friday’s disappointing prints from the advanced Consumer Sentiment for the current month tracked by the U-Mich Index and released on Friday, all coupled with some profit taking mood in light of sharp bounce in the buck, particularly in the wake of 3-decade-high inflation figures during October.

In the US data space, the regional manufacturing gauge measured by the NY Empire State Index will be the sole release later in the NA session seconded by a 3m/6m note auctions.

What to look for around USD

The index managed to hit new cycle highs in levels last seen back in the summer of 2020 near 95.30. The intense move higher in the buck remains well underpinned by the “higher-for-longer” narrative around current elevated inflation, which in turn lend wings to US yields and bolster speculations of a sooner-than-estimated move on interest rates by the Federal Reserve, probably at some point in H2 2022. Further support for the dollar comes in the form of the solid recovery in the labour market along with Biden’s infrastructure bill.

Key events in the US this week: NY Empire State Index (Monday) – Retail Sales, Industrial Production, Business Inventories, NAHB Index, TIC Flows (Tuesday) – Building Permits, Housing Starts (Wednesday) – Initial Claims, Philly Fed Index (Thursday).

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Debt ceiling issue. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is losing 0.08% at 95.04 and a break above 95.26 (2021 high Nov.12) would open the door to 95.71 (monthly low Jun.10 2020) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 93.87 (weekly low November 9) seconded by 93.62 (55-day SMA) and finally 93.27 (monthly low October 28).