USD Index revisits the contention area around 105.30 ahead of key data

• The index loses further ground and revisits 105.30.
• The dollar appears weak following Powell’s remark on Wednesday.
• Markets’ attention remains on inflation tracked by the PCE.

The greenback, in terms of the USD Index (DXY), adds to Wednesday’s pullback and drops to the 105.30 region, where decent contention has so far emerged.

USD Index focuses on data

The index retreats for the second session in a row and navigates the low-105.00s amidst increasing bearishness surrounding the buck, which was particularly, exacerbated after Chair Powell reinforced the case for a slower pace of future interest rate hikes. This new stance by the Fed could be announced as soon as at the December 14 gathering.

The current downside in the dollar comes in tandem with a tepid bounce in US yields in the short end and the belly of the curve, while the long end remains marginally on the defensive.

Later in the NA session, investors’ attention is expected to be on the publication of inflation figures measured by the PCE and the ISM Manufacturing. In addition, usual Initial Claims are due long with Personal Income, Personal Spending, the final Manufacturing PMI and Construction Spending.

Furthermore, Dallas Fed L.Logan (2023 voter, centrist) and FOMC’s Governors M.Bowman (permanent voter, centrist) and M.Barr (permanent voter, centrist) are also due to speak ahead of the Fed’s blackout period.

What to look for around USD

The dollar loses further ground and puts once again the contention area near 105.30 to the test in the wake of Powell’s speech and amidst the solid rebound in the risk complex.

While hawkish Fedspeak maintains the Fed’s pivot narrative in the freezer, upcoming results in US fundamentals would likely play a key role in determining the chances of a slower pace of the Fed’s normalization process in the short term.

Key events in the US this week: PCE, Initial Jobless Claims, Personal Income/Spending, Final Manufacturing PMI, ISM Manufacturing, Construction Spending (Thursday) - Nonfarm Payrolls, Unemployment Rate (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. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 0.36% at 105.48 and the breakdown of 105.30 (weekly low December 1) would open the door to 104.63 (monthly low August 10) and finally 103.41 (weekly low June 16). On the other hand, the immediate resistance emerges at 107.19 (weekly high November 30) seconded by 107.99 (weekly high November 21) and then 109.07 (100-day SMA).