US Dollar Index appears depressed in the low 106.00s
|- The index adds to the pessimism in the first half of the week.
- US yields remain apathetic ahead of key CPI release.
- NFIB Index, IBD/TIPP Index next on tap in the docket.
The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rivals, keeps trading without clear direction in the 106.30 region so far on Tuesday.
US Dollar Index remains cautious ahead of US CPI
The index remains on the defensive in the first half of the week, always amidst the broader consolidation theme with the upside clearly capped around the vicinity of the 107.00 mark and the lower bound limited near the 105.00 region.
The dollar, in the meantime, trades in a prudent fashion ahead of the publication of the key US inflation figures for the month of July due on Wednesday, while market chatter around a potential 75 bps rate hike at the Fed’s September meeting seems to have lost presence among investors in past hours.
In the US data space, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index are due later ahead of the weekly report on US crude oil supplies by the American Petroleum Institute (API).
What to look for around USD
The index remains under pressure after advancing to the boundaries of the 107.00 mark soon after solid results from US Nonfarm Payrolls more than doubled its initial estimates in July.
The dollar, in the meantime, is poised to extend the current range bound theme amidst persistent cautiousness pre-US CPI and prospects for the continuation of the aggressive normalization by the Federal Reserve.
Looking at the macro scenario, the dollar appears propped up by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.
Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Wholesale Inventories (Wednesday) Initial Claims, Producer Prices (Thursday) – Flash Consumer Sentiment (Friday).
Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.
US Dollar Index relevant levels
Now, the index is losing 0.10% at 106.26 and a breach of 105.04 (monthly low August 2) would expose 103.67 (weekly low June 27) and finally 103.45 (100-day SMA). On the upside, a breakout of 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002).
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