US Dollar Index looks offered around 99.00

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main competitors, gives away part of the recent advance and slips back to the 99.00 neighbourhood on Monday.

US Dollar Index remains cautious on Ukraine, Fed

The index comes under some mild downside pressure at the beginning of the week following two consecutive daily gains, including another move beyond the 99.00 barrier.

The corrective move in the buck is accompanied by the continuation of the uptrend in US yields, where the short end of the curve hovers around 1.80% for the first time since August 2019, the belly challenges 2-month tops past 2.05% and the long end navigates above 2.40%, levels last seen a year ago.

Absent data releases on the US docket on Monday, the focus of attention is expected to be on Wednesday's FOMC event, where the Federal Reserve is forecast to hike the Fed Funds Target Range by 25 bps. The probability of a such a raise in rates is at nearly 98% from almost 95% a week ago, according to CME Group’s FedWatch Tool.

What to look for around USD

The index returned to levels above the key 99.00 barrier at the end of last week and extended the rebound in the second half of the week in response to persistent risk aversion and the lack of any progress towards a diplomatic solution of the Russia-Ukraine military conflict. The persevering bias towards the safe haven universe is predicted to keep supporting the dollar and the rest of its peers in the current uncertain context surrounding Ukraine. Also supportive of the stronger buck appears the current elevated inflation narrative, the start of the Fed’s normalization of its monetary conditions later this week and the solid performance of the US economy.

Key events in the US this week: Producer Prices, TIC Flows (Tuesday) – Retail Sales, Business Inventories, NAHB Index, FOMC Meeting, Powell press conference (Wednesday) – Building Permits, Housing Starts, Philly Fed Index, Initial Claims, Industrial Production (Thursday) – CB Leading Index, Existing Home Sales (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Futures of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is losing 0.18% at 98.94 but a break above 99.29 (high Mar 14) would open the door to 99.41 (2022 high Mar 7) and finally 99.97 (high May 25 2020). On the flip side, the next down barrier emerges at 97.71 (weekly low Mar 10) followed by 97.44 (monthly high Jan 28) and then 96.40 (55-day SMA).