• DXY extends the optimism at the beginning of the week.
  • The index trades in 2-day highs near the 92.80 level.
  • Retail Sales, Industrial Production, Powell next on tap.

The greenback, when tracked by the US Dollar Index (DXY), adds to Monday’s gains and approaches the 92.80 area on turnaround Tuesday.

US Dollar Index now looks to data

The index advances for the second consecutive session and navigates in the area of 2-day highs around 92.80, extending further the bounce of recent lows in the mid-92.00s at the same time.

The persistent bias towards the risk aversion continues to lend support to the dollar despite inflation seems to have lost some upside traction (as per the latest readings) and confidence among consumers appear somewhat subdued as of late.

In the meantime, the advance of the delta variant of the coronavirus and its potential impact on global growth prospects keep undermining the sentiment among market participants and prop up further the risk-off mood.

Additionally, yields of the key US 10-year reference remain on the defensive below the 1.25% level for the time being.

Later in the US data space, the focus of attention will be on the release of Retail Sales, Industrial and Manufacturing Production, Business Inventories, the NAHB Index and the API’s weekly report on US crude oil inventories.

In addition, Chief Powell will participate in a Q&A session with educators and students and Minneapolis Fed N.Kashkari is due to speak later in the session.

What to look for around USD

DXY’s recovery appears healthy and now re-targets the key 93.00 yardstick in the short-term horizon. Further gains in the dollar appear somewhat limited after the latest FOMC meeting saw the Committee talking down the probability of QE tapering in the near term despite the upbeat, albeit so far insufficient, progress of the US economy (and the broad consensus among investors). In the meantime, fresh coronavirus concerns, the solid pace of the economic recovery, high inflation and speculations around an earlier-than-expected QE tapering/rate hikes should remain key factors supporting the dollar for the time being vs. the reflation trade, which is expected to keep propping up the risk complex.

Key events in the US this week: Retail Sales, Industrial Production, NAHB (Tuesday) – Building Permits, Housing Starts, FOMC Minutes (Wednesday) – Initial Claims, Philly Fed Index, CB Leading Index (Thursday).

Eminent issues on the back boiler: Biden’s multi-billion plan to support infrastructure and families. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Debt ceiling debate. Potential hint at QE tapering at the Jackson Hole Symposium.

US Dollar Index relevant levels

Now, the index is gaining 0.13% at 92.72 and a break above 93.19 (monthly high Aug.11) would open the door to 93.43 (2021 high Mar.21) and finally 94.00 (round level). On the other hand, the next support emerges at 92.17 (50-day SMA) followed by 91.78 (monthly low Jul.30) and finally 91.51 (weekly low Jun.23).

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