US Dollar Index looks offered in the sub-96.00 region ahead of Powell

• DXY surrender part of Monday’s advance and drops below 96.00.
• US yields seem to be taking a breather around recent peaks.
• NFIB Index, IBD/TIPP Index next of note in the US calendar.

The US Dollar Index (DXY), which measures the greenback vs. a bundle of its main competitors, trades on the defensive and slips back to the area below the 96.00 mark on turnaround Tuesday.

US Dollar Index looks to yields, Powell

The index extends the erratic performance for yet another session on Tuesday, eroding part of Monday’s gains and always amidst the broad consolidative theme prevailing since early December.

In addition, the upside momentum in US yields seems to have run out of some vigour after last week’s strong rebound and now look to stabilize in the area of recent highs, removing at the same time some strength from the buck.

No meaningful reaction in the FX space after talks between the US and Russia yielded the promise of resuming the dialogue in the not-so-distant future.

In the US data space, Chief Powell will testify before the Committee on Banking, Housing and Urban Affairs, with the imminent start of the hiking cycle by the Fed and his re-election expected to be in the centre of the debate.

In addition, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index are due later in the NA session.

What to look for around USD

The index remains side-lined around the 96.00 neighbourhood amidst the ongoing absence of key drivers and lack of a clear direction in the broad risk appetite trends. In the meantime, the dollar seems somewhat decoupled from the recent strong rebound in US yields in contrast with the steady price action in the dollar in past sessions. In the meantime, the dollar’s constructive outlook is seen underpinned by the Fed’s intentions to start the hiking cycle earlier than anticipated amidst persevering elevated inflation, supportive Fedspeak, higher yields and the solid performance of the US economy.

Key events in the US this week: Fed J.Powell Testimony (Tuesday) - December CPI (Wednesday) - Initial Claims, FOMC L.Brainard Testimony, Producer Prices (Thursday) - Retail Sales, Industrial Production, Flash Consumer Sentiment, Business Inventories (Friday).

Eminent issues on the back boiler: Start of the Fed’s tightening cycle. US-China trade conflict under the Biden’s administration. Debt ceiling issue. Potential geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is retreating 0.11% at 95.84 and a break above 96.46 (weekly top Jan.4) would open the door to 96.90 (weekly high Dec.15) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 95.65 (55-day SMA) seconded by 95.57 (monthly low Dec.31) and then 95.51 (weekly low Nov.30).