US Dollar Index regains traction and revisits 106.70 ahead of key data

• The index resumes the upside around the 106.70 zone.
• The US 2y-10y yield curve adds to Tuesday’s advance.
• The FOMC Minutes, Retail Sales will take centre stage later.

Following Tuesday’s inconclusive price action, the US Dollar Index (DXY) regains the smile and advances to the 106.70 region, or daily highs, on Wednesday.

US Dollar Index now looks to the docket

Bulls seem to have returned to the dollar on Wednesday. Indeed, the index picks up further pace and revisits the 106.70 zone, as the recent improvement in the risk complex seems to lack follow through.

The move higher in the dollar appears propped up by the equally firm tone in US yields, particularly in the short term and the belly of the curve, which manage to extend Tuesday’s advance.

Later in the US docket weekly MBA Mortgage Applications are due in the first turn seconded by Retail Sales, Business Inventories and the publication of the FOMC Minutes of the July 27 meeting.

What to look for around USD

The strong rebound in the dollar comes in response to some worsening conditions in the risk complex, which motivates DXY to now shift its attention to the 107.00 neighbourhood once again.

The dollar, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, namely a 50 bps or 75 bps hike in September.

Looking at the macro scenario, the dollar appears propped up 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.

Key events in the US this week: MBA Mortgage Applications, Retail Sales, Business Inventories, FOMC Minutes (Wednesday) – Initial Claims, Philly Fed Manufacturing Index, CB Leading Index, Existing Home Sales (Thursday).

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.

US Dollar Index relevant levels

Now, the index is gaining 0.05% at 106.52 and a breakout of 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the other hand, immediate support comes at 104.63 (monthly low August 10) seconded by 103.89 (100-day SMA) and finally 103.67 (weekly low June 27).