US Dollar Index tumbles to 2-week lows near 103.20 ahead of Powell

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.

Pablo Piovano FXStreet

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).

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.

EUR/USD looks to regain the 200-day SMA

EUR/USD regains some balance and trade just above 1.1600 the figure ahead of the opening bell in Asia. The pair initially dipped to the 1.1530 zone for the first time since November, always following the stronger US Dollar and the marked flight-to-safety in the context of the ongoing Middle East crisis

GBP/USD attacks 1.3300, refreshing three-month lows

GBP/USD is deep in the red near 1.3300, accelerating its downside to renew three-month lows in European trading on Tuesday. The ongoing escalation in the Iran war, combined with rising Oil prices, weighs negatively on the higher-yielding Pound Sterling as the US Dollar capitalizes on increased haven demand.

Gold bounces off lows, back above $5,100

Gold remains on the defensive, eroding part of the recent multi-day advance and managing to trade back above the $5,100 mark per troy ounce on Tuesday. The precious metal initially dropped just below the critical $5,000 threshold on the back of the persistent strength of the Greenback, higher US Treasury yields across the curve and investors' repricing of Fed rate cuts.