US Dollar Index extends the upside to new highs beyond 108.00

• The index advances further north of the 108.00 mark.
• US yields appear offered at the beginning of the week.
• The Chicago Fed Index will be the sole release in the US docket.

The greenback, in terms of the US Dollar Index (DXY), maintains the bid bias well and sound for yet another session and extends the upside further north of the 108.00 hurdle.

US Dollar Index in 6-week tops

The index advances for the fourth consecutive session and navigates 6-week peaks well past the 108.00 yardstick, as market participants continue to assess the recent hawkish messages from FOMC governors ahead of the key September meeting.

In the meantime, the price action around the risk complex appears depressed, while yields give aways part of the recent advance on both sides of the Atlantic.

The Chicago Fed National Activity Index for the month of July will be the sole release in the US docket at the beginning of the week.

What to look for around USD

Hawkish rhetoric from Fed’s rate-setters coupled with deteriorating sentiment in the risk complex propel the index back above the 108.00 barrier, exposing at the same time a probable move to cycle highs north of 109.00 in the near term.

Bolstering the dollar’s strength appears the firm conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

DXY, 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 greenback 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: Chicago Fed National Activity Index (Monday) – Flash PMIs, New Home Sales (Tuesday) – MBA Mortgage Applications, Durable Goods Orders, Pending Home Sales (Wednesday) – Jackson Hole Symposium, Advanced Q2 GDP Growth Rate, Initial Claims (Thursday) - Jackson Hole Symposium, PCE, Personal Income, Personal Spending, Fed Powell, Final Consumer Sentiment (Friday) - Jackson Hole Symposium (Saturday).

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 0.20% at 108.31 and a breakout of 109.00 (round level) would open the door to 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the other hand, immediate support comes at 105.89 (55-day SMA) followed by 104.63 (monthly low August 10) and finally 104.17 (100-day SMA).