US Dollar Index tumbles to multi-day lows below 109.00

• The index loses further momentum and breaches 109.00.
• The risk complex regains poise and leaves behind recent weakness.
• Fedspeak, Wholesale Inventories next on tap in the docket.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, sheds further ground and drops to multi-session lows in the sub-109.00 area on Friday.

US Dollar Index offered on upbeat risk appetite

The index quickly sets aside Thursday’s inconclusive price action and breaks below the 109.00 support with certain conviction amidst the noticeable improvement in the risk-associated universe.

That said, the dollar continues to correct lower after hitting fresh 20-year peaks near 110.80 earlier in the week (September 7), as investors seem to have already digested another hawkish message from Chief Powell, this time from his participation at a virtual event on Thursday.

In the US calendar, July’s Wholesale Inventories will be the sole event. In addition, and before the Fed’s blackout period, Chicago Fed C.Evans (2023 voter, centrist), Kansas City Fed E.George (voter, hawk) and FOMC’s Governor C.Waller (permanent voter, hawk) are all due to speak.

What to look for around USD

The index has embarked on a corrective path that has already broken below the key support at 109.00 at the end of the week.

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: 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 retreating 0.80% at 108.78 and faces the next support at 107.58 (weekly low August 26) seconded by 107.17 (55-day SMA) and then 104.63 (monthly low August 10). On the other hand, 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).