US Dollar Index in fresh lows, as bears regain control

The greenback, in terms of the US Dollar Index (DXY), adds to the pessimistic start of the week and drops to new lows in the sub-103.00 region on Tuesday.

US Dollar Index weaker amidst risk-on mood

The index adds to Monday’s pullback and now breaches the 102.00 support for the first time since late April following the continuation of the investors’ appetite for the risk complex.

Indeed, the prevailing risk-on mood accelerated after the opening bell in the European markets on turnaround Tuesday and following further comments from ECB’s Lagarde, who almost confirmed that interest rates will be in the positive territory in Q3, at the time when she ruled out a recession in the euro bloc for the time being.

The corrective downside in the dollar, in the meantime, comes amidst the recovery in US yields, while the German 10y bund yields appear to lack some upside traction so far.

From the Fed’s backyard, Kansas City Fed E.George said late on Monday that she expects the policy rate to be around 2% by August and added that the Fed’s top objective is bring inflation down to the bank’s 2% goal. Previously, San Francisco Fed M.Daly said she does not expect a recession and suggested higher rates can coexist with and expanding economy and plenty of employment.

In the US data space, Chief Powell will make welcoming remarks at an event in Las Vegas, while Flash Manufacturing and Services PMIs and New Home Sales are also due later in the NA session.

What to look for around USD

The dollar started the week in a negative fashion and breaches the 103.00 mark, printing at the same time new 4-week lows. In the meantime, and supporting the buck, appears investors’ expectations of a tighter rate path by the Federal Reserve and its correlation to yields, the current elevated inflation narrative and the solid health of the labour market. On the negatives for the greenback turn up the incipient speculation of a “hard landing” of the US economy as a result of the Fed’s more aggressive normalization.

Key events in the US this week: Flash PMIs, New Home Sales, Fed Powell (Tuesday) – MBA Mortgage Applications, Durable Goods Orders, FOMC Minutes (Wednesday) – Flash Q1 GDP, Initial Claims, Pending Home Sales (Thursday) – Core PCE, Personal Income/Spending, Final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Speculation of a “hard 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 losing 0.30% at 101.78 and faces the next contention at 100.89 (55-day SMA) followed by 100.00 (psychological level) and then 99.81 (weekly low April 21). The break above 105.00 (2022 high May 13) would open the door to 105.63 (high December 11 2002) and finally 106.00 (round level).