US Dollar Index remains bid and challenges 2022 highs near 97.70

The US Dollar Index (DXY), which gauges the greenback vs. its main competitors, extends the upside to the vicinity of the 2022 highs near 97.80 on Wednesday.

US Dollar Index stronger on risk aversion, looks to data, Powell

The index advances for the third session in a row and flirts with the YTD tops near 97.80 on the back of the firm presence of the risk aversion in the global markets.

The intensification of the Russia-Ukraine conflict remains the exclusive source of the prevailing risk-off sentiment among market participants as well as the persevering “flight-to-safety”, which continues to prop up the demand for the dollar and the rest of the safe haven universe.

On the latter, US cash markets shows the continuation of the intense demand for bond, which in turn sponsors the ongoing corrective downside in US yields across the curve.

In the US data space, Chief Powell will testify before the House Financial Services Committee, while the monthly ADP report will take centre stage later in the NA session seconded by MBA Mortgage Applications and the publication of the Fed’s Beige Book. In addition, St. Louis Fed J.Bullard (voter, hawkish) is due to speak.

What to look for around USD

In the broader scenario, the war-led risk aversion continues to bolster the dollar and keeps the index well bid on the back of the deterioration of the geopolitical arena. The constructive view in the buck remains underpinned by the current elevated inflation narrative and the probability of a more aggressive start of the Fed’s normalization of its monetary conditions. In the longer run, recent hawkish messages from the BoE and the ECB carry the potential to undermine the expected move higher in the dollar in the next months.

Key events in the US this week: MBA Mortgage Applications, ADP report, Powell’s testimony, Fed’s Beige Book (Wednesday) – Initial Claims, ISM Non-Manufacturing, Factory Orders, Powell’s testimony (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict under the Biden administration.

US Dollar Index relevant levels

Now, the index is gaining 0.21% at 97.59 and a break above 97.73 (2022 high Feb.24) would open the door to 97.80 (high Jun.30 2020) and finally 98.00 (round level). On the flip side, the next down barrier emerges at 96.06 (55-day SMA) followed by 95.67 (weekly low Feb.16) and then 95.17 (weekly low Feb.10).