USD Index regains the smile and re-targets 114.00

• The index picks up pace and advances sharply to 113.75/80.
• US yields regain upside traction and reclaim ground lost.
• Final Q2 GDP Growth Rate, Initial Claims next on tap in the docket.

The greenback, when tracked by the USD Index (DXY), leaves behind part of Wednesday’s steep decline and advances to the 113.75/80 band on Thursday.

USD Index now looks to data

Following Wednesday’s acute retracement, the index resumes the uptrend and advances to the upper-113.00s amidst the resumption of the weak note in the risk complex and the march north in US yields across the curve.

Indeed, the dollar leaves behind Wednesday’s corrective move and refocuses on the 114.00 neighbourhood, as investors continue to reprice the tighter-for-longer stance from the Federal Reserve. Wednesday’s “technical” knee-jerk in the buck was somehow expected as per the extreme overbought conditions of DXY in past sessions.

In the US calendar, the final Q2 GDP Growth Rate will take centre stage along with usual weekly Claims and speeches by St. Louis Fed J.Bullard (voter, hawk), Cleveland Fed L.Mester (voter, hawk) and San Francisco Fed M.Daly (2024 voter, hawk).

What to look for around USD

Bulls regain the upper hand after Wednesday’s correction and prompt the dollar to re-shift its focus to the 114.00 hurdle and beyond.

Propping up the dollar’s underlying positive stance 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.

Looking at the more macro scenario, the greenback also appears bolstered 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: Final Q2 GDP Grow Rate, Initial Claims (Thursday) – PCE/Core PCE, Personal Income/Spending. Final Michigan Consumer Sentiment (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.

USD Index relevant levels

Now, the index is advancing 0.92% at 113.75 and a breakout of 114.76 (2022 high September 28) would expose 115.00 (round level) and then 115.32 (May 2002 high). On the downside, the next contention aligns at 109.35 (weekly low September 20) seconded by 107.68 (monthly low September 13) and finally 107.58 (weekly low August 26).