US Dollar Index looks weaker, breaks below 96.00 ahead of Powell, data

• DXY comes under extra pressure and breaches 96.00.
• Yields in the US cash markets extend the decline on Tuesday.
• Housing data, Powell, Consumer Confidence next of note in the docket.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, resumes the downside and slips back to the sub-96.00 area on turnaround Tuesday.

US Dollar Index focuses on Powell, data, risk trends

The index resumes the downtrend and quickly leaves behind Monday’s recovery attempt, always on the back of declining yields and increasing concerns among investors over the recently discovered omicron variant of the coronavirus.

The dollar comes under pressure in tandem with diminishing US yields along the curve, where the front end and the belly navigate multi-day lows in the 0.48% area and near 1.45%, respectively. The longer-dubbed bond drops for the fifth consecutive session to the sub-1.83% area.

In the meantime, market participants continue to closely follow the progress of the omicron variant against the backdrop of the already increasing COVID cases and its potential impact on the economic outlook.

On the latter, Chairman Powell said on Monday that increasing cases as well as the omicron variant threaten the prospects for employment and the economic activity and increase the uncertainty around inflation.

Busy day in the US calendar, as the FAFH’s House Price Index is due seconded by the S&P/Case-Shiller Index and the Chicago PMI. In addition, the Conference Board will publish its Consumer Confidence gauge.

On the Fed’s front, Chief Powell will testify on the Coronavirus and CARES Act before the Senate Committee on Banking, Housing and Urban Affairs. Additionally, NY Fed J.Williams and Vice Chair R.Clarida – both permanent voters – are also due to speak.

What to look for around USD

The dollar extends the corrective downside following last week’s cycle tops near the 97.00 barrier (November 24). In the meantime, the move lower in US yields seems to weigh on the buck for the time being, while the current backdrop of rising COVID concerns, fresh safe haven demand, the “higher-for-longer” narrative around current elevated inflation and speculations of a Fed’s lift-off earlier than anticipated remain all factors supportive of the dollar for the time being.

Key events in the US this week: CB Consumer Confidence, Fed Powell’s testimony (Tuesday) – ADP Report, Final Manufacturing PMI, ISM Manufacturing, Fed’s Beige Book (Tuesday) – Initial Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Factory Orders, ISM Non-Manufacturing (Friday).

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 0.38% at 95.82 and a break above 96.93 (2021 high Nov.24) 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 95.75 (weekly low Nov.26) followed by 95.51 (low Nov.18) and finally 94.96 (weekly low Nov.15).