US Dollar Index: Bears lead the way to the 105.60 region ahead of US ISM

The greenback, in terms of the US Dollar Index (DXY), remains on the defensive and revisits recent lows in the 105.60 region on Monday.

US Dollar Index offered on risk-on trade, looks to data

The index loses ground for the fourth consecutive session so far on Monday against the backdrop of further improvement in the risk complex and a tepid bounce in US yields in the belly and the long end of the curve.

Indeed, the downbeat mood prevails around the greenback and keeps DXY under further pressure after investors continue to assess last week’s poor GDP prints (-0.9%), which showed the US economy entered a technical recession in Q2.

Later in the NA session, the final S&P Global Manufacturing PMI is due ahead of the key ISM Manufacturing PMI, both gauges for the month of July. Finally, June’s Construction PMI will also be in the calendar.

What to look for around USD

The index remains under pressure below the 106.00 mark and navigate fresh 3-week lows at the beginning of the week, mainly following recession chatter and the persistent decline in US yields across the curve.

The very-near-term outlook for the dollar has deteriorated somewhat in recent sessions, particularly following the latest US GDP figures and the prospects for further tightening by the Fed in the next months, which carry the potential to drag further the economy into the contraction territory.

Among the positives for the buck still emerge 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: Final Manufacturing PMI, ISM Manufacturing PMI (Monday) – MBA Mortgage Applications, Factory Orders, ISM Non-Manufacturing (Wednesday) – Balance of Trade, Initial Claims (Thursday) – Non-Farm Payrolls, Unemployment Rate, Consumer Credit Change (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 down 0.16% at 105.65 and faces initial support at 104.75 (55-day SMA) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002).