US Dollar Index: Bulls regain control and target 105.00, focus on Powell

The greenback, in terms of the US Dollar Index (DXY), regains the smile and approaches the 105.00 mark on Wednesday.

US Dollar Index looks to Powell

The index adds to Tuesday’s small gains and advances decisively towards the 105.00 area despite US yields edging lower during the European morning.

The bid tone surrounding the buck follows investors’ expectations ahead of Powell’s Semiannual Monetary Policy Report before the US Senate, where the Fed’s next steps regarding its normalization process are expected to take centre stage.

Further events in the US docket include the weekly MBA Mortgage Applications and speeches by Chicago Fed C. Evans (2023 voter, centrist), Rischmond Fed T. Barkin (2024 voter, hawk) and Philly Fed P. Harker (2023 voter, hawk).

What to look for around USD

The index looks to extend the rebound following the post-FOMC lows in the 103.40 region (June 16).

The dollar, in the meantime, remains well supported by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy, all factors supportive of a stronger dollar in the next months.

Key events in the US this week: MBA Mortgage Applications, Powell’s Semiannual Testimony (Wednesday) – Initial Claims, Flash PMIs, Powell’s Semiannual Testimony (Thursday) – Final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Powell’s “softish” landing… what does that mean? 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 gaining 0.29% at 104.73 and a break above 104.94 (weekly high June 22) would expose 105.78 (2022 high June 15) and then 107.31 (monthly high December 2002). On the downside, the next support aligns at 103.41 (weekly low June 16) seconded by 102.62 (55-day SMA) and finally 101.29 (monthly low May 30).