US Dollar Index drops to 3-week lows as bears regain confidence

• DXY starts the week on the offered stance near 102.60.
• US yields extend the corrective downside on Monday.
• Chicago Fed Index, Fedspeak next on tap in the docket.

The greenback extends the bearish move and drops to new 3-week lows in the 102.60/55 band when tracked by the US Dollar Index (DXY) on Monday.

US Dollar Index looks to risk trends, Fed

The index resumes the recent downtrend and quickly leaves behind Friday’s bullish attempt amidst muted activity in US yields and a prevailing risk-on sentiment at the beginning of the week.

Indeed, US yields hover around Friday’s closing levels, while the German 10y bund yields extend the downside momentum to the sub-0.95% region so far.

There are no changes to the macro backdrop around the US dollar, where speculation of the next moves by the Fed coupled with inflation fears and incipient concerns over a “hard landing” in the US economy continue to dictate the price action in the buck.

In the docket, the sole release on Monday will be the Chicago Fed National Activity Index seconded by the speech by Atlanta Fed R.Bostic (2024 voter, centrist).

What to look for around USD

The dollar starts the week in a negative fashion and well south of the 103.00 mark. In the meantime, and 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: Chicago Fed National Activity Index (Monday) – Flash PMIs, New Home Sales, Fed Powell (Tuesday) – MBA Mortgage Applications, Durable Goods Orders, FOMC Minutes (Wednesday) – Flash Q1 GDP, Initial Claims, Pending Home Sales (Thursday) – Core PCE, Personal Income/Spending, Final Consumer Sentiment (Friday).

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 losing 0.38% at 102.63 and faces the next contention at 102.35 (low May 5) followed by 100.85 (55-day SMA) and then 99.81 (weekly low April 21). 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).