US Dollar Index regains the smile and targets 110.00 ahead of ECB, Powell

• The index reclaims part of the ground lost on Wednesday’s drop.
• Initial attention will be on the ECB event later on Thursday.
• Chair Powell, Initial Claims are next on tap in the calendar.

The greenback, in terms of the US Dollar Index (DXY), regains composure and trades close to the 110.00 neighbourhood on Thursday.

US Dollar Index focuses on Powell, ECB

The index manages to regain some buying interest and recoup part of the ground lost following Wednesday’s strong retracement, all after being rejected from new cycle highs in the 110.75/80 band.

The rebound in the dollar so far comes in tandem with the mixed performance of US yields across the curve and some prudence among investors ahead of the ECB interest rate decision due later in the session and the participation of Chief Powell in a virtual discussion at the Cato Institute’s 40^th Annual Monetary Conference.

In the US data space, usual weekly Initial Claims are due seconded by Consumer Credit Change for the month of July.

What to look for around USD

The index keeps the underlying bullish outlook well in place and retargets the 110.00 mark and above despite Wednesday’s decline.

Bolstering the dollar’s strength appears the firmer 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. This view was reinforced by Chair Powell’s speech at the Jackson Hole Symposium.

Extra volatility in the dollar, however, should not be ruled out considering the ongoing debate around the size of the September’s interest rate hike by the Federal Reserve amidst the ongoing data-dependent stance in the Fed.

Looking at the more macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Initial Claims, Consumer Credit Change, Fed Powell (Thursday) – Wholesale Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

US Dollar Index relevant levels

Now, the index is advancing 0.19% at 109.74 and a break above 110.78 (2022 high September 7) would aim for 111.90 (weekly high September 6 2002) and then 113.35 (weekly high May 24 2002). On the other hand, the next contention turns up at 107.58 (weekly low August 26) seconded by 107.08 (55-day SMA) and then 104.63 (monthly low August 10).