US Dollar Index looks offered and approaches 106.00 ahead of data

• The index adds to Wednesday’s losses near the 106.00 area.
• US yields attempt a mild rebound following the FOMC event.
• Advanced Q2 GDP, Initial Claims come next in the docket.

The greenback, in terms of the US Dollar Index (DXY), extends the bearish note to the 106.00 neighbourhood on Thursday, where a decent contention seems to have emerged.

US Dollar Index now looks to GDP

The index is down for the second session in a row as market participants continue to digest the somewhat unexpected dovish tone from the FOMC gathering on Wednesday.

It is worth recalling that the Federal Reserve raised the Fed Funds Target Range by 75 bps to 2.25%-2.50%, as broadly anticipated, although Chief Powell dialed down the probability of further large hikes later at his press conference.

Later in the session, flash Q2 GDP figures will take centre stage seconded by usual weekly Claims.

What to look for around USD

The index comes under downside pressure in the wake of the Fed meeting on Wednesday and now flirts with the 106.00 region.

Despite the knee-jerk, the constructive view in the dollar appears bolstered by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: Flash Q2 GDP, Initial Claims (Thursday) – PCE Price Index, Personal Income, Personal Spending, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? 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 down 0.16% at 106.29 and faces initial support at 106.05 (weekly low July 28) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002).