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USD Index turns positive above 103.00, focuses on Powell, data


10 January 2023

The index alternates gains with losses and retakes the 103.00 barrier. US yields trade in a mixed fashion across the curve on Tuesday. Chief Powell speaks later at an event in Sweden. The USD Index (DXY), which tracks the greenback vs. a basket of its main rival currencies, regains the smile and looks to extend the advance past the 103.00 barrier on turnaround Tuesday.

USD index looks at Powell, risk trends

Following two strong daily pullbacks, the index attempts to regain some upside traction and reclaim the area above 103.00 the figure in a more convincing fashion. The so far small bullish attempt in the greenback is accompanied by marginal price action in US yields across the curve amidst some prudence ahead of the participation of Fed’s J.Powell at an event in Sweden on “Central Bank Independence”.

In the US data space, the NFIB Business Optimism Index, the IBD/TIPP Economic Optimism Index and monthly figure of Wholesale Inventories are all due later during the NA trading hours.

What to look for around USD

Despite the ongoing little recovery, the dollar remains under pressure in the 103.00 region amidst investors’ broad-based preference for the risk-associated galaxy. The mixed results from the US Nonfarm Payrolls for the month of December (Friday) seem to have reignited the idea of a probable pivot in the Fed’s policy in the next months, which comes in contrast to the message from the latest FOMC Minutes, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year.

Furthermore, the tight labour market, still elevated inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: Wholesale Inventories, Fed’s Powell (Tuesday) – MBA Mortgage Applications (Wednesday) – Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Flash 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. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is gaining 0.12% at 103.29 and the next up barrier comes at 105.63 (monthly high January 6) followed by 106.35 (200-day SMA) and then 107.19 (weekly high November 30). On the flip side, the breach of 102.94 (monthly low January 9) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level).

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