US Dollar Index focused on yields, data
The index advances for the third session in a row on Tuesday and already trades at shouting distance from YTD highs in the 93.70/75 band (August 20).
Supportive Fedspeak on Monday in combination of the sharp move higher in US yields lent fresh oxygen to the buck and kept the recovery in the index well and sound for yet another session.
Very interesting US calendar on Tuesday will show the always relevant Consumer Confidence gauge measured by the Conference Board seconded by Chairman Powell’s testimony on “Coronavirus and CARES Act” before the US Senate Committee on Banking, Housing and Urban Affairs. In addition, house prices tracked by the FHFA is due followed by the S&P/Case-Shiller Index, advanced Trade Balance results and speeches by FOMC M.Bowman (permanent voter, centrist) and Atlanta Fed R.Bostic (voter, centrist).
What to look for around USD
The index manages to advance further and trades in fresh September highs near 93.60 and now targets the YTD peaks near 93.70. The improved mood in the buck follows the unexpected hawkish message from Chief Powell, prospects for an interest rate hike by end of 2022 and the sharp move higher in US yields. Positive results from US fundamentals coupled with alleviating concerns regarding the progress of the Delta variant should also add to the constructive view of the dollar in the near/medium term.
Key events in the US this week:
Advanced Goods Trade Balance, CB Consumer Confidence, Powell’s Testimony (Tuesday) – Powell’s speech (Wednesday) – Final Q2 GDP, Initial Claims (Thursday) – PCE, Final Manufacturing PMI, ISM Manufacturing, Personal Income/Spending, final 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. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.
US Dollar Index relevant levels
Now, the index is gaining 0.20% at 93.59 and a break above 93.61 (monthly high Sep.28) would open the door to 93.72 (2021 high Aug.20) and then 94.30 (monthly high Nov.4 2020). On the flip side, the next down barrier emerges at 92.98 (weekly low Sep.23) seconded by 92.75 (55-day SMA) and finally 91.94 (monthly Sep.3).
The US 10-yr yield takes out the psychological 1.5% barrier
The US 10-yr yield takes out the psychological 1.5% barrier with the next real test arriving soon at 1.53% (62% retracement on March/July decline).
On the bigger picture, despite euro's LT upmove fm 2017 near 14-year low of 1.0341 to a fresh 3-year peak of 1.2555 in mid-Feb 2018, euro's decline to a near 3-year 1.0637 low in Mar 2020 signals correction has ended. Despite staging an impressive upmove to a near 33-month 1.2349 peak in early Jan 2021, subsequent selloff to 1.1705 (Mar) signals top is made. Although euro climbed to 1.22 66 in May, subsequent break of 1.1705 sup to a 9-1/2 month trough of 1.1664 low in mid-Aug signals a major top is made. As euro has fallen after a short-covering rally to 1.1908 in early Sep, bearishness is retained, below 1.1664 would extend MT decline fm 1.2349 top to 1.1603 but reckon 1.1545/50 would hold.
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