• DXY’s moderate retracement meets support near 103.20.
  • US Retail Sales surprised to the upside in April.
  • Chief Powell speaks later in the NA session.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main competitors, remains on the defensive well below the 104.00 mark on Tuesday.

US Dollar Index now looks to Powell

The index keeps the weekly decline well in place, although it manages to bounce off earlier lows in the 103.25/20 band, or 2-week lows.

The renewed downside in the dollar comes amidst further improvement in the risk complex as well as a technical retracement in light of the overbought condition of DXY seen in the last couple of sessions.

Positive results from the US docket helped the greenback to trim part of the daily drop after Retail Sales expanded at a monthly 0.9% in April, and 0.6% for sales excluding the Autos sector. In addition, Industrial Production expanded 1.1% and Capacity Utilization improved to 79.0%.

Later in the session, Chief Powell speaks at the Wall Street Journal Future of Everything Festival in New York. In addition, Philly Fed P.Harker (2023 voter, hawk) and Cleveland Fed L.Mester (voter, hawk) are also due to speak later.

What to look for around USD

The dollar met decent resistance in the 105.00 neighbourhood so far this month, sparking a moderate correction lower afterwards. Supporting the buck appears investors’ expectations of a tighter rate path by the Federal Reserve and its correlation to yields, the current elevated inflation narrative and the solid health of the labour market. One negative for the greenback is incipient speculation of a “hard landing” for the US economy as a result of the Fed’s more aggressive normalization.

Key events in the US this week: Retail Sales, Industrial Production, Business Inventories, NAHB Index, Fed Powell (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts (Wednesday) – Initial Claims, Philly Fed Manufacturing Index, Existing Home Sales, CB Leading Index (Thursday).

Eminent issues on the back boiler: Speculation of a “hard 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 down 0.75% at 103.40 and faces the next support at 103.22 (weekly low May 17) followed by 102.35 (low May 5) and then 99.81 (weekly low April 21). On the other hand, a break above 105.00 (2022 high May 13) would open the door to 105.63 (high December 11 2002) and finally 106.00 (round level).

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