US Dollar Index punches through 108.00 to nearly 20-year highs

  • The rally in the dollar looks unabated above 108.00.
  • US yields extend the decline to multi-day lows on Tuesday.
  • IBD/TIPP Index, NFIB Index, Fed’s Barkin next on tap.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main competitors, keeps the bid bias well and sound and trespasses the 108.0 barrier on turnaround Tuesday.

US Dollar Index in 20-year peaks

The index extends the optimism seen at the beginning of the week and trade beyond the 108.00 mark for the first time since October 2002, always underpinned by the unabated sell-off in the euro.

The move higher in the dollar comes on the back of diminishing US yields, as recession concerns seem to prompt investors to seek shelter in the safe haven universe for the time being.

Friday’s release of the June Payrolls, however, appear to have mitigated part of those worries and now favour the continuation of the current pace of the Fed’s normalization process.

Speaking about recession fears, the Atlanta Fed’s GDPNow sees the economy contracting 1.2% in the April-June period (from a 1.9% contraction recorded previously).

In the US data space, the IBD/TIPP Economic Optimism index and the NFIB Business Optimism Index are due later seconded by the speech by Richmond Fed T.Barkin (2024 voter hawk).

What to look for around USD

The index pushes higher and surpasses the 108.00 hurdle, charting at the same time new cycle highs. It is worth noting, however, that the recent sharp move in the dollar comes largely in response to the accelerated decline in the European currency.

Further support for the dollar is expected to come from the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Fed Beige Book (Wednesday) – Producer Prices, Initial Claims (Thursday) – Retail Sales, Industrial Production, Flash Consumer Sentiment, Business Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? 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 up 0.29% at 108.52 and a break above 108.55 (2022 high July 12) would expose 108.74 (monthly high October 2002) and then 109.00 (round level). On the flip side, the next support aligns at 103.67 (weekly low June 27) seconded by 103.41 (weekly low June 16) and finally 101.29 (monthly low May 30).

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