The greenback starts the Wednesday’s session in the old continent on the backfooting around the 92.50 zone when gauged by the US Dollar Index (DXY). The index reverses Tuesday’s small uptick and quickly fades the earlier move to the 92.70 region, where also sits the 20-day SMA. DXY traded within a volatile fashion on Tuesday, retreating to new lows near 92.30 soon after the discouraging US inflation prints just to quickly reverse the move and close the day with small gains in the 92.657/70 band.
The current knee-jerk in the dollar comes amidst the steady performance of US yields, where the 10-year benchmark note now appears side-lined below the 1.30% mark.
In the meantime, a sustainable retracement in the dollar looks unlikely for the time being despite the recent loss of upside traction in inflation underpins the start of the tapering process later in the year (certainly later than September). Delta concerns and the impact on growth outlook, safe haven demand ultimately the start of QE tapering are all seen tempering bearish moves in the buck. In the US data space, MBA’s Mortgage Applications comes in the first turn seconded by Export/Import Prices, the NY Empire State Index, Industrial/Manufacturing Production and Capacity Utilization.
What to look for around USD
DXY’s performance remains erratic so far this week, with gains so far limited by Monday’s peaks just below the 93.00 barrier. Steady yields and the lack of direction in the broad risk appetite trends prompt some consolidation in the dollar in the very near term, while perseverant COVID jitters, doubts surrounding the rebound in the US economic activity and inflation risks remain as key factors underpinning the buck for the time being.
Key events in the US this week: MBA Mortgage Applications, Industrial Production (Wednesday) – Retail Sales, Initial Claims, Philly Fed Index, Business Inventories (Thursday) – Flash September Consumer Sentiment (Friday).
Eminent issues on the back boiler: Biden’s multi-trillion plan to support infrastructure and families. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.
US Dollar index relevant levels
Now, the index is losing 0.10% at 92.56 and a break above 92.88 (monthly high Sep.13) would open the door to 93.18 (high Aug.27) and then 93.72 (2021 high Aug.20). On the flip side, the next down barrier emerges at 92.32 (weekly low Sep.14) seconded by 91.94 (monthly low Sep.3) and finally 91.78 (monthly low Jul.30).