- The index trades slightly on the defensive near the 108.00 zone.
- US yields keep the trade in the upper end of the recent range.
- All the attention will be on the release of US inflation figures.
The greenback, when tracked by the US Dollar Index (DXY), extends the leg lower and puts the 108.00 yardstick once again to the test on turnaround Tuesday.
US Dollar Index focuses on US CPI
The index loses ground for the third session in a row on Tuesday amidst the continuation of the improved sentiment surrounding the risk-associated assets.
In fact, price action in the dollar remains subdued and comes amidst the generalized downtick in US yields across the curve. Furthermore, investors continue to lean towards a 75 bps rate raise at the Fed’s September 21 meeting, with CME Group’s FedWatch Tool signalling a probability of nearly 90% of that scenario.
In the US data space, the publication of inflation figures tracked by the CPI for the month of August will be the salient event later in the NA session. Markets’ consensus expects headline consumer prices to have eased to 8.1% over the last twelve months (from 8.5%).
Other than the CPI results, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index are also due later.
What to look for around USD
The index has embarked on a corrective path from last week’s cycle highs and keeps hovering around the 108.00 neighbourhood ahead of the CPI release on Tuesday.
Bolstering the dollar’s underlying positive stance appears 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. This view was reinforced by Chair Powell’s speech at the Jackson Hole Symposium.
Looking at the more macro scenario, the greenback appears propped up 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: Inflation Rate (Tuesday) – MBA Mortgage Applications, Producer Prices (Wednesday) – Retail Sales, Initial Claims, Philly Fed Manufacturing Index, Industrial Production, Business Inventories (Thursday) – Flash Michigan Consumer Sentiment, TIC Flows (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 over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.
US Dollar Index relevant levels
Now, the index is retreating 0.12% at 108.17 and faces the next support at 107.81 (monthly low September 12) followed by 107.58 (weekly low August 26) and finally 107.32 (55-day SMA). On the other hand, a break above 110.78 (2022 high September 7) would aim for 111.90 (weekly high September 6 2002) and then 113.35 (weekly high May 24 2002).
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