USD Index extends the upside momentum and targets 111.00 ahead of data

• The index adds to Thursday’s advance and approaches 111.00.
• The risk complex remains on the defensive following the ECB event.
• Core PCE, Final Consumer Sentiment next on tap in the docket.

The greenback picks up extra pace in the second half of the week and approaches the key 111.00 region when measured by the USD Index (DXY) on Friday.

USD Index now looks to data

The index advances for the second session in a row and extends the bounce off Thursday’s lows in the 109.50 zone, always on the back of the sour mood surrounding the risk-associated universe.

Indeed, the riskier assets shed further ground as market participants continue to digtest Thursday’s dovish hike by the ECB and the steady stance from the BoJ at its event earlier in the Asian trading hours.

The recovery in the dollar comes in tandem with the rebound in US yields across the curve, partially leaving behind several sessions trading in the negative territory.

Later in the NA session, inflation figures tracked by the PCE and Core PCE will take centre stage seconded by Personal Income/Spending, the final Michigan Consumer Sentiment gauge for the month of October and Pending Home Sales.

What to look for around USD

The dollar extends the rebound from multi-week lows and now shifts the focus to the 111.00 hurdle.

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: 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 gaining 0.27% at 110.87 and faces the immediate up barrier at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the flip side, the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).