USD Index: Sellers regain control and drag the dollar to 3-week lows

The USD Index (DXY), which tracks the greenback vs. a bundle of its main rivals, accelerates its decline to the vicinity of the 111.00 neighbourhood, or 3-week lows.

USD Index looks to data

The index sinks further and maintains the negative tone for the second consecutive week on the back of the strong improvement in the sentiment surrounding the risk-associated universe.

The knee-jerk in the dollar follows the equally marked pullback in US yields across the curve, where the short end and the belly flirt with multi-day lows.

Data wise in the US, the FHFA House Price Index contracted at a monthly 0.7% in August, while the Consumer Confidence print tracked by the Conference Board will be in the limelight later in the session.

What to look for around USD

The dollar comes under heavy selling pressure and puts the 111.00 zone to the test on turnaround Tuesday.

In the meantime, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: FHFA House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, New Home Sales, Building Permits, Advanced Goods Trade Balance (Wednesday) – Flash Q3 GDP Growth Rate, Durable Goods Orders (Thursday) – PCE/Core PCE Price Index, Personal Income/Spending, Pending Home Sales, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 0.77% at 111.13 and the breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the other hand, the next up barrier lines up at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).