- DXY adds to the ongoing rally around 108.30.
- US yields remains on the defensive for another session.
- The US CPI will be the salient event later in the NA session.
The greenback, when gauged by the US Dollar Index (DXY), posts decent gains beyond 108.30 vs. its main rivals on Wednesday.
US Dollar Index looks to CPI results
Following Tuesday’s inconclusive session, the index now resumes the uptrend and refocuses on Tuesday’s cycle highs in the upper-108.00s amidst alternating risk appetite trends and ahead of the key release of US inflation figures measured by the CPI.
In the meantime, the US money markets show a small downtick in US yields, reflecting the increasing cautiousness among market participants ahead of the US CPI.
In the meantime, recession fears vs. the Fed’s tightening plans remain in the centre of the debate along with inflation concerns, all expected to keep dictating the price action in the global markets for the time being.
Other than the CPI release, MBA Mortgage Applications are due along with the Fed’s Beige Book and the Monthly Budget Statement.
What to look for around USD
The index pushed higher and clinched new cycle highs north of 108.00 on Tuesday. 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 0.15% at 108.32 and a break above 108.56 (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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