US Dollar Index extends the decline to 95.70 ahead of data

• The index adds to Wednesday’s losses around 95.70.
• US 10y yields drop further and trade near 1.58%.
• Initial Claims, Philly Fed Index, Fedspeak next on tap.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main rival currencies, extends the corrective downside and revisits the 95.70 region on Thursday.

US Dollar Index looks to data

The index loses ground for the second consecutive session and slips back to the 95.70 region on Thursday against the backdrop of steady US yields and a generalized optimism in the risk complex.

Indeed, yields in the front end of the curve gyrate around the 0.50% region while the 10y note navigate the sub-1.60% zone so far.

In the US data space, the usual weekly Claims are due followed by the Philly Fed Index and the CB Leading Index. In addition, NY Fed J.Williams (permanent voter, centrist), Chicago Fed C.Evans (voter, centrist) and San Francisco Fed M.Daly (voter, centrist) are all due to speak later in the NA session.

What to look for around USD

The index came under selling pressure after hitting new cycle highs further north of the 96.00 barrier on Wednesday. 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, Biden’s infrastructure bill and positive results in US fundamentals.

Key events in the US this week: 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 95.76 and a break above 96.24 (2021 high Nov.17) would open the door to 97.00 (round level) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.04 (10-day SMA) followed by 94.56 (monthly high Oct.12) and finally 93.87 (weekly low November 9).