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28 Nov 2022

USD Index comes under pressure and breaches 106.00

  • The index fades Friday’s advance and returns to the sub-106.00 area.
  • US yields gives away part of the recent gains on Monday.
  • The Dallas Fed Manufacturing Index, Fedspeak come next in the docket.

The greenback starts the week on the defensive and slips back to the area below the 106.00 mark when tracked by the USD Index (DXY).

USD Index looks to risk trends

The index resumes the downside below the 106.00 mark in the wake of the opening bell in the European markets on Monday.

Indeed, the greenback sheds ground vs. the risk-complex, while a sharp decline vs. the Japanese yen follows the negative start of the week in US yields so far. Moving forward, the week will be marked by the speech by Chief Powell on “Economic Outlook, Inflation and the Labour Market” (Wednesday) and the relese of November’s Payrolls (Friday).

In the calendar, the only scheduled release will be the Dallas Fed Manufacturing Index, seconded by short-term bill auctions and a speech by New York Fed J.Williams (permanent voter, centrist).

What to look for around USD

The dollar loses its composure and returns to the sub-106.00 region at the beginning of the week and keeps looking at the risk trends and the social unrest in China as initial drivers for the week ahead.

While hawkish Fedspeak maintains the Fed’s pivot narrative in the freezer, upcoming results in US fundamentals would likely play a key role in determining the chances of a slower pace of the Fed’s normalization process in the short term.

Key events in the US this week: FHFA House Price Index, Consumer Confidence (Tuesday) - Mortgage Applications, ADP Employment Change, GDP Growth Rate, Goods Trade Balance, Pending Home Sales, Fed Powell, Fed Beige Book (Wednesday) - PCE, Initial Jobless Claims, Personal Income/Spending, Final Manufacturing PMI, ISM Manufacturing, Construction Spending (Thursday) - Nonfarm Payrolls, Unemployment Rate (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 persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 0.34% at 105.69 and the breakdown of 105.36 (200-day SMA) would open the door to 105.34 (monthly low November 15) and finally 104.63 (monthly low August 10). On the other hand, the immediate resistance emerges at 107.99 (weekly high November 21) followed by 109.13 (100-day SMA) and then 110.44 (55-day SMA).

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