DXY looks depressed around the mid-95.00s midweek. US 10y yields remain capped by the 1.80% area. Inflation figures tracked by the CPI next of note in the docket. The greenback, in terms of the US Dollar Index (DXY), struggles for direction in the lower end of the current range near 95.50. Following the Powell-led sharp selloff on Tuesday, the index now attempts to regain some composure and put some distance from the area of recent lows.
Indeed, it is worth recalling that the buck intensified the downside on Tuesday after Chief J.Powell ruled out any immediate action to reduce the balance sheet at his testimony before the Senate Banking Committee, adding that the Fed might take between two and four meetings to make such a decision. Powell also suggested the existence of risks that inflation could get entrenched and stressed that supply chain disruptions are behind the inflation pressures.
While the dollar accelerated the losses in the wake of Powell’s testimony, US yields kept the steady performance near recent highs, showing some lack of conviction to extend the move further north for the time being. The publication of December inflation figures gauged by the CPI will be the salient event later in the NA session. Previously, MBA will release weekly figures of Mortgage Applications and Minneapolis Fed N.Kashkari (2023 voter, dovish) is due to speak.
What to look for around USD
The USD index dropped and recorded new 2022 lows near 95.50 following Powell’s testimony on Tuesday, where it is now looking to consolidate ahead of the release of the December CPI. In the meantime, the dollar seems somewhat decoupled from the recent strong rebound in US yields in contrast with the steady price action in the dollar in past sessions. In the meantime, the constructive outlook for the buck is seen underpinned by the Fed’s intentions to start the hiking cycle earlier than anticipated amidst persevering elevated inflation, supportive Fedspeak, higher yields and the solid performance of the US economy.
Key events in the US this week: December CPI (Wednesday) - Initial Claims, FOMC L.Brainard Testimony, Producer Prices (Thursday) - Retail Sales, Industrial Production, Flash Consumer Sentiment, Business Inventories (Friday).
Eminent issues on the back boiler: Start of the Fed’s tightening cycle. US-China trade conflict under the Biden’s administration. Debt ceiling issue. Potential geopolitical effervescence vs. Russia and China.
US dollar index relevant levels
Now, the index is gaining 0.05% at 95.63 and a break above 96.46 (weekly top Jan.4) would open the door to 96.90 (weekly high Dec.15) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 95.53 (2022 low Jan.12) seconded by 95.51 (weekly low Nov.30 2021) and then 94.96 (low Nov.15 2021).
