US Dollar Index drops further and tests the 94.60 region ahead of data

DXY tumbles to multi-week lows near the 94.60 area.
US yields regain some traction at the end of the week.
US Retail Sales take centre stage later in the NA session.

Pablo Piovano FXStreet

The greenback, in terms of the US Dollar Index (DXY), sheds further ground and drops to levels last seen in early November around 94.60, an area coincident with the 100-day SMA.

US Dollar Index looks weaker, focuses on data

The index trade on the defensive since Tuesday. Indeed, the dollar has intensified the decline after US inflation rose to levels last seen in 1982 at 7% YoY in December, while further downside pressure came following the breakdown of the 200-week SMA (95.07) and the 4m support line around 95.15.

The mild rebound in US yields does nothing to reverse the downtrend in the buck so far on Friday, with remains at the mercy of the strong improvement in the appetite for the riskier assets.

Interesting session in the US calendar, with Retail Sales emerging as the salient release seconded by Industrial/Manufacturing Production, Capacity Utilization, Business Inventories and the flash print of the Consumer Sentiment for the month of January. In addition, NY Fed J.Williams (permanent voter, centrist) is due to speak.

What to look for around USD

The index loses the grip further and sinks to fresh 2-month lows in the vicinity of 94.60, always amidst the strong performance in the risk complex and despite higher yields. On the supportive side for the greenback, Fed-speakers still point to a sooner-than-anticipated lift-off (likely in March), the persistent elevated inflation, higher yields and the solid performance of the US economy.

Key events in the US this week: Retail Sales, Industrial Production, Flash Consumer Sentiment, Business Inventories (Friday).

Eminent issues on the back boiler: Start of the Fed’s tightening cycle. US-China trade conflict under the Biden’s administration. Debt ceiling issue. Potential geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is losing 0.20% at 94.67 and a break above 95.71 (55-day SMA) would open the door to 96.46 (2022 high Jan.4) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 94.62 (2022 low Jan.14) seconded by 93.27 (monthly low Oct.28 2021) and then 93.12 (200-day SMA).

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

AUD/USD gains traction near 0.7100 as the post-Fed USD rally pauses

AUD/USD finds fresh buyers and retakes 0.7100 in the Asian session on Thursday as the US Dollar pauses its hawkish Fed-inspired rally to its highest level since late July. However, RBA rate-hike bets and hopes for US-Iran diplomatic efforts lift risk sentiment and support the risk-sensitive Australian Dollar and the major.

USD/JPY reverses a dip below 156.00 as focus shifts to BoJ

USD/JPY is reversing a brief dip below 156.00 in the Asian session on Thursday, looking to snap a three-day winning streak to a nearly two-week top set the previous day. The US Dollar pauses following the post-Fed rally to seven-week highs, while a more hawkish repricing of the BoJ's policy normalization path supports the Japanese Yen. This keeps the pair's upside limited, with the focus now shifting to the BoJ policy decision due on Friday.

Gold pops to weekly highs near $4,400

Gold climbs sharply and clinches fresh weekly peaks around the $4,480 zone per troy ounce on Thursday. The precious metal’s bounce leaves behind three daily declines in a row and follows the marked retracement in the US Dollar as well as another negative performance of crude oil prices.

BoE recap: A cautious stance amid rising inflation risks

The Bank of England left Bank Rate unchanged at 3.75% but delivered a distinctly hawkish message as its inflation outlook deteriorated sharply.

One hike down, more to come? The Fed’s new rate path says yes

The Federal Reserve (Fed) raised its Fed Fund Target Range (FFTR) range by 25 basis points to 3.75%-4.00% in a unanimous decision, saying the move would support a timelier return to its 2% inflation goal.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.