US Dollar Index drops to monthly lows near 93.60

The greenback, when tracked by the US Dollar Index (DXY), added to recent losses and drops to new 3-week lows around 93.60.

US Dollar Index weaker on risk-on mood

The index extends the bearish move further and drops to the 93.60 region on turnaround Tuesday.

The continuation of the downtrend in the dollar comes in response to the move lower in US yields across the curve, with the front end slipping back to sub-0.40% levels, the belly hovering around 1.60% and the long end flirting with the 2.04%.

In addition, further improvement in the risk complex weighs on the buck, as the profit-taking mood surrounding the dollar appears still unabated.

In the US docket, housing data due later in the session will include Building Permits and Housing Starts for the month of September along with speeches by San Francisco Fed M.Daly (voter, centrist), FOMC’s Governors M.Bowman and C.Waller (permanent voters, centrists) and Atlanta Fed R.Bostic (voter, centrist).

What to look for around USD

The index keeps correcting lower following new 2021 highs past 94.50 on October 12, with initial support so far emerging around 93.60. Supportive Fedspeak, an anticipated start of the tapering process, higher yields and the rising probability that high inflation could linger for longer continue to prop up the sentiment around the buck for the time being and keep sustaining the case for the resumption of the uptrend in DXY in the relatively short-term horizon.

Key events in the US this week: Building Permits, Housing Starts (Tuesday) – Initial Claims, Philly Fed Index, CB Leading Index, Existing Home Sales (Thursday) – Flash Manufacturing PMI (Friday).

Eminent issues on the back boiler: Persistent uncertainty around Biden’s multi-billion Build Back Better plan. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is losing 0.31% at 93.65 and a break above 94.56 (2021 high Oct.12) would open the door to 94.74 (monthly high Sep.25 2020) and then 94.76 (200-week SMA). On the flip side, the next down barrier emerges at 93.58 (monthly low October 19) followed by 93.18 (55-day SMA) and finally 92.98 (weekly low Sep.23).