USD Index challenges monthly lows near 110.00

• The index extends the weekly leg lower to the vicinity of 110.00.
• The risk complex picks up extra pace on speculation around Fed’s pivot.
• Housing data, Trade Balance results next on tap in the docket.

The greenback, when gauged by the USD Index (DXY), loses further momentum and approaches the 110.00 area, or 5-week lows, on Wednesday.

USD Index weaker on risk-on mood, Fed

The index adds to Tuesday’s losses and extends further the recent weakness amidst the extra improvement in the sentiment surrounding the risk-linked galaxy on Wednesday.

Indeed, speculation that a Fed’s pivot could be closer than many have expected keeps weighing on the buck and undermines further the price action around the dollar and sustains the decline in US yields.

In the US data space, the weekly MBA Mortgage Applications is due seconded by advance Goods Trade Balance results and New Home Sales.

What to look for around USD

The dollar accelerates the corrective decline and trades closer to the key suppoer at the 110.00 neighbourhood midweek.

In the meantime, 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 continues to prop up the underlying positive tone in the index.

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: MBA Mortgage Applications, New Home Sales, Building Permits, Advanced Goods Trade Balance (Wednesday) – Flash Q3 GDP Growth Rate, Durable Goods Orders (Thursday) – PCE/Core PCE Price Index, Personal Income/Spending, Pending Home Sales, 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 of 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 retreating 0.70% at 110.11 and the breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the other hand, the next up barrier lines up at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).