US Dollar Index looks offered well below 96.00
|- DXY starts the week on the defensive and drops to 95.70.
- Diminishing geopolitical risks lend support to the risk-on trade.
- US markets will be closed due to the President Day’s holiday.
The greenback, when tracked by the US Dollar Index (DXY), fades Friday’s uptick and refocuses on the downside at the beginning of the week.
US Dollar Index weighed down by risk appetite
The index reverses two consecutive daily advances and revisits the 95.70 region on Monday in response to the broad-based improvement in the risk complex, particularly following auspicious news from the Russia-Ukraine front.
Indeed, US Blinken will meet his Russian peer Lavrov later in the week, while a potential Biden-Putin summit could be also in the pipeline, all collaborating with the current bias towards the riskier assets.
Absent releases in the US docket, the speech by FOMC M.Bowman (permanent voter, centrist) will be the sole event later in the NA session.
What to look for around USD
Better news on the Russia-Ukraine-US standoff lends some support to the risk-associated universe and weighs on the dollar at the beginning of the week. However, the recent corrective downside in the buck was deemed as temporary only, as the positive stance in the dollar remains underpinned by the current elevated inflation narrative as well as the probability of a more aggressive start of the Fed’s normalization of its monetary conditions. Looking at the longer run, and while the constructive outlook for the greenback appears well in place for the time being, recent hawkish messages from the BoE and the ECB carry the potential to undermine the expected move higher in the dollar in the next months.
Key events in the US this week: House Price Index, Flash Manufacturing PMI, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications (Wednesday) – Advanced Q4 GDP, Initial Claims, New Home Sales (Thursday) – PCE, Durable Goods Orders, Personal Income/Spending, Pending Home Sales, Final Consumer Sentiment (Friday).
Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict under the Biden administration. Debt ceiling issue.
US Dollar Index relevant levels
Now, the index is losing 0.31% at 95.80 and a break above 96.43 (weekly high Feb.14) would open the door to 97.44 (2022 high Jan.28) and finally 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.67 (weekly low Feb.16) seconded by 95.17 (weekly low Feb.10) and then 95.13 (weekly low Feb.4).
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