US Dollar Index looks for direction around 96.50 ahead of data, FOMC

• DXY hovers around the 96.50 region on Wednesday.
• PCE, weekly Claims, Consumer Sentiment all due later.
• The FOMC will release its Minutes of the November meeting.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, alternates gains with losses in the mid-96.00s midweek.

US Dollar Index looks to data, FOMC

The index trades within an inconclusive fashion so far on Wednesday, although it keeps navigating the upper end of the recent range near fresh cycle tops around 96.60 recorded on Tuesday.

The dollar’s small pullback from recent 2021 peaks comes in response to the so far knee-jerk in US yields across the curve, giving away part of the recent advance at the same time. It is worth recalling that yields in the US cash markets regained extra traction in response to the re-appointment of Chief Powell to the helm of the Federal Reserve.

Other than higher yields, the greenback keeps deriving strength from prospects of a sooner-than-anticipated lift-off by the Federal Reserve in the current context of persistently elevated inflation. In the same direction, Atlanta Fed’s R.Bostic advocated on Tuesday for a faster pace of QE tapering, which should pave the way for earlier interest rate hikes.

The cautious note among investors echoes on the dollar in light of key releases later in the NA session: Initial Claims, Core PCE, flash Q3 GDP, final Consumer Sentiment, Durable Goods Orders, New Home Sales and Personal Income/Spending, all ahead of the publication of the FOMC Minutes of the 2-3 November meeting.

What to look for around USD

The index clinched new cycle tops around 96.60 earlier in the week, drifting a tad lower afterwards. 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 bolsters speculations of a sooner-than-estimated move on interest rates by the Federal Reserve. Indeed, investors see the Fed hiking rates on June, September and December 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: Durable Goods Orders, Flash Q3 GDP, Initial Claims, New Home Sales, Trade Balance, Core PCE, Final Consumer Sentiment, Personal Income/Spending, FOMC Minutes (Wednesday).

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 advancing 0.01% at 96.49 and a break above 96.60 (2021 high Nov.23) 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 95.51 (low Nov.18) followed by 94.96 (weekly low Nov.15) followed by 94.56 (monthly high Oct.12).