US Dollar Index recedes from 2021 tops ahead of key data

• DXY retreats to the 95.40 area following Monday’s peaks.
• US yields give away part of the recent advance on Tuesday.
• Retail Sales, Industrial Production take centre stage in the NA session.

The greenback, in terms of the US Dollar Index (DXY), backpedals part of the recent advance and revisits the 95.40 on turnaround Tuesday.

US Dollar Index focuses on data

The index gives away some gains after hitting new cycle tops near 95.60 at the beginning of the week helped by the bounce in US yields and above-estimated prints from the NY Empire State Index.

Tuesday’s so far knee-jerk in the greenback comes on the back of some loss of momentum in US yields across the curve ahead of the opening bell in Euroland.

The dollar, in the meantime, remained apathetic on the Biden-Xi virtual meeting, which yielded no significant progress.

Busy day in the US calendar on Tuesday, where Retail Sales for the month of October will take centre stage seconded by Industrial Production, the NAHB Index and Business Inventories.

In addition, Atlanta Fed R.Bostic (voter, centrist), Richmond Fed T.Barkin (voter, centrist), Philly Fed P.Harker (2023 voter, hawkish) and San Francisco Fed M.Daly (voter, centrist) are all due to speak throughout the session.

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 95.60 on Monday. 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: 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 0.05% at 95.48 and a break above 95.59 (2021 high Nov.15) 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 93.68 (55-day SMA) and finally 93.27 (monthly low October 28).