US Dollar Index looks offered in the sub-96.00 region ahead of Powell

DXY surrender part of Monday’s advance and drops below 96.00.
US yields seem to be taking a breather around recent peaks.
NFIB Index, IBD/TIPP Index next of note in the US calendar.

Pablo Piovano FXStreet

The US Dollar Index (DXY), which measures the greenback vs. a bundle of its main competitors, trades on the defensive and slips back to the area below the 96.00 mark on turnaround Tuesday.

US Dollar Index looks to yields, Powell

The index extends the erratic performance for yet another session on Tuesday, eroding part of Monday’s gains and always amidst the broad consolidative theme prevailing since early December.

In addition, the upside momentum in US yields seems to have run out of some vigour after last week’s strong rebound and now look to stabilize in the area of recent highs, removing at the same time some strength from the buck.

No meaningful reaction in the FX space after talks between the US and Russia yielded the promise of resuming the dialogue in the not-so-distant future.

In the US data space, Chief Powell will testify before the Committee on Banking, Housing and Urban Affairs, with the imminent start of the hiking cycle by the Fed and his re-election expected to be in the centre of the debate.

In addition, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index are due later in the NA session.

What to look for around USD

The index remains side-lined around the 96.00 neighbourhood amidst the ongoing absence of key drivers and lack of a clear direction in the broad risk appetite trends. In the meantime, the dollar seems somewhat decoupled from the recent strong rebound in US yields in contrast with the steady price action in the dollar in past sessions. In the meantime, the dollar’s constructive outlook is seen underpinned by the Fed’s intentions to start the hiking cycle earlier than anticipated amidst persevering elevated inflation, supportive Fedspeak, higher yields and the solid performance of the US economy.

Key events in the US this week: Fed J.Powell Testimony (Tuesday) - December CPI (Wednesday) - Initial Claims, FOMC L.Brainard Testimony, Producer Prices (Thursday) - 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 retreating 0.11% at 95.84 and a break above 96.46 (weekly top Jan.4) would open the door to 96.90 (weekly high Dec.15) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 95.65 (55-day SMA) seconded by 95.57 (monthly low Dec.31) and then 95.51 (weekly low Nov.30).

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: Upside appears capped by $4,400

Gold climbs sharply and clinches fresh weekly peaks on Thursday, although the bull run seems to have met some initial hurdle around the $4,400 zone per troy ounce. The yellow metal’s rebound reverses three daily declines in a row and follows the modest 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.