US Dollar Index regains the smile above 96.00 ahead of data, Powell

• DXY fades part of Tuesday’s pullback and retakes the 96.00 area.
• Omicron concerns, higher yields seem to lend support to the dollar.
• Powell’s testimony, ISM Manufacturing next of relevance in the docket.

The greenback, in terms of the US Dollar Index (DXY), regains the upper hand and manages to return to the area above the 96.00 barrier on Wednesday.

US Dollar Index looks to Powell, data, yields

The index posts decent gains around the 96.00 neighbourhood and partially recover the ground lost on Tuesday’s retracement.

The better note in the buck comes amidst the recovery in US yields across the curve at the time when market participants continue to digest Chief Powell’s testimony on Tuesday.

Indeed, it is worth recalling that Powell said before the Senate that the Committee will discuss accelerating the pace of the tapering at its next meeting, while he suggested that inflation pressures might not be transitory anymore.

Later in the NA session, MBA Mortgage Applications are due seconded by the ISM Manufacturing, the ADP report, Markit’s final Manufacturing gauge, the Fed’s Beige Book as well as the second testimony by Chairman J.Powell and the speech by Treasury Secretary J.Yellen.

What to look for around USD

The dollar manages to bounce off recent lows in the mid-95.00s on the back of the recovery in yields and the hawkish twist from Powell’s testimony. In the meantime, the current backdrop of rising omicron 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: ADP Report, Final Manufacturing PMI, ISM Manufacturing, Powell’s testimony, 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 gaining 0.21% at 96.09 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 95.51 (weekly low Nov.30) followed by 94.96 (weekly low Nov.15) and finally 94.44 (low Nov.18).