USD Index comes under pressure near 106.50 ahead of key data

• The index meets some initial resistance near 106.90.
• US yields look poised to rebound following Thursday’s decline.
• US PCE, Final Consumer Sentiment take centre stage in the docket.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main competitors, runs out of some upside impulse and recedes to the mid-106.00s at the end of the week.

USD Index focuses on data

The index reverses three consecutive daily advances and comes under a mild downside pressure after hitting three-week lows near 106.90 in the previous session.

In the meantime, US yields appear to have entered a consolidative phase in the area of recent multi-year peaks across different maturities, while consensus among investors continue to signal a pause by the Federal Reserve at its next week’s event, while the door remains open to a potential rate hike in December.

This view was reinforced on Thursday after stronger-than-expected US Q3 GDP figures and Durable Goods Orders.

In the US data space, all the attention is expected to be on the release of US inflation figures gauged by the PCE and Core PCE, seconded by Personal Income, Personal Spending and final prints of the Michigan Consumer Sentiment.

What to look for around USD

The upside momentum in the index seems to have met some initial obstacle just below the 107.00 barrier so far this week.

In the meantime, support for the dollar keeps coming from the good health of the US economy and still elevated inflation, which morphs into higher yields and underpins the renewed tighter-for-longer narrative from the Federal Reserve.

Key events in the US this week: PCE, Core PCE, Personal Income, Personal Spending, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persevering debate over a soft or hard landing for the US economy. Incipient speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China and the Middle East.

USD Index relevant levels

Now, the index is down 0.02% at 106.60 and faces initial contention at 105.36 (monthly low October 24) ahead of 104.42 (weekly low September 11) and then 103.39 (200-day SMA). On the upside, the breakout of 106.88 (weekly high October 26) could expose 107.34 (2023 high October 3) and finally 107.99 (weekly high November 21 2022).