US Dollar Index: Bulls regain the initiative near 103.60

• DXY reverses the recent weakness and revisits 103.60.
• US yields add to the recovery along the curve post-Powell.
• Housing sector data, Fed’s Harker next on tap in the docket.

Following three sessions trading on the defensive, the greenback manages to regain the smile and advance to the 103.60 region when tracked by the US Dollar Index (DXY) on Wednesday.

US Dollar Index up post-Powell, risk-on loses traction

The index reverses three consecutive daily pullbacks and bounces off 2-week lows near 103.20 midweek on the back of the better mood around the dollar and amidst the continuation of the recovery in US yields.

Indeed, investors’ shifted their interest back to the greenback after Chief Powell reinforced late on Tuesday the case for a 50 bps hike of the Fed Funds Target Range in the next couple of meetings, at the time when he reiterated once again that the Fed will raise rates until inflation gives convincing signs of losing traction. He also suggested that the Fed will need to slow down the economic growth levels seen in 2021 and hinted at the idea that the landing could be kind of “bumpy”.

In the US cash markets, yields continue to recover along the curve, adding to Tuesday’s uptick.

Data wise in the US, MBA Mortgage Applications are due in the first turn seconded by Building Permits and Housing Starts. Later in the NA session, Philly Fed P.Harker (2023 voter, hawk) is also due to speak.

What to look for around USD

The index managed well to keep business above the 103.00 mark following the recent moderate corrective leg lower. Supporting the buck appears investors’ expectations of a tighter rate path by the Federal Reserve and its correlation to yields, the current elevated inflation narrative and the solid health of the labour market. On the negatives for the greenback turn up the incipient speculation of a “hard landing” of the US economy as a result of the Fed’s more aggressive normalization.

Key events in the US this week: MBA Mortgage Applications, Building Permits, Housing Starts (Wednesday) – Initial Claims, Philly Fed Manufacturing Index, Existing Home Sales, CB Leading Index (Thursday).

Eminent issues on the back boiler: Speculation of a “hard landing” of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is up 0.28% at 103.59 and the break above 105.00 (2022 high May 13) would open the door to 105.63 (high December 11 2002) and finally 106.00 (round level). On the flip side, initial contention emerges at 103.19 (weekly low May 18) followed by 102.35 (low May 5) and then 99.81 (weekly low April 21).