USD Index remains on the defensive near 109.50, focus on data, elections

• The index extends the bearish move and hovers around 109.50.
• Republicans lead the race to the Senate by a marginal gap.
• Weekly Mortgage Applications, Wholesale Inventories, Fedspeak next on tap.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main rivals, extends the decline and revisits the 109.50/40 band on Wednesday.

USD Index appears cautious ahead of US CPI

The index loses ground for the 4^th consecutive session and navigates an area las seen back in mid-September around 109.50, always against the backdrop of rising prudence ahead of the publication of US inflation figures (Thursday) and persistent appetite for the risk complex.

In addition, investors remain cautious and following the results from the US midterm elections, where the Republican party continues to lead the vote in both the Senate and the House of Representatives.

The downtick in the dollar, in addition, comes in tandem with the lack of traction in US yields across the curve.

In the calendar, the weekly Mortgage Applications gauged by MBA are due along with Wholesale Inventories and speeches by NY Fed J.Williams (permanent voter, centrist) and Richmond Fed T.Barkin (2024 voter, centrist).

What to look for around USD

The dollar remains under heavy pressure amidst persistent risk-on mood and the continuation of the repricing of a Fed’s pivot in the relatively short term.

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 be the main source of strength for the dollar so far.

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, Wholesale Inventories (Wednesday) – Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Preliminary Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: US midterm elections. 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. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is losing 0.05% at 109.56 and the breakdown of 109.35 (weekly low September 20) would open the door to 107.68 (monthly low September 13) and finally 104.66 (200-day SMA). On the upside, the initial resistance emerges at 113.14 (monthly high November 3) followed by 113.88 (monthly high October 13) and then 114.76 (2022 high September 28).