USD Index extends the recovery to the 110.50 area after data, ECB

• The index accelerates its correction to the 110.50 region on Thursday.
• Flash US GDP figures now see the economy expanding 2.6% in Q3.
• The ECB hiked the policy rate by 75 bps, as widely expected.

The USD Index (DXY), which tracks the greenback vs. a basket of its main rivals, manages to pick up extra pace and retests the mid-110.00s region on Thursday.

USD Index bounces off lows in the 109.50 zone

After two consecutive daily pullbacks, the index met some dip buyers on Thursday and edged higher, reclaiming at the same time the 110.00 mark and beyond on the back of fresh weakness in the risk complex.

The recovery in the dollar comes in tandem with another negative session in US yields, which give away the initial optimism and return to the negative ground across the curve.

Extra strength in the dollar also comes from the inability of the ECB to surprise markets on the bullish side, which kind of undermined the recent steep rebound in the European currency.

In the US data space, another revision of the GDP Growth Rate saw the economy expand 2.6% YoY in Q3, while headline Durable Goods Orders rose 0.4% MoM in September and Initial Jobless Claims increased by 217K WoW in the week to October 22.

What to look for around USD

The dollar seems to have met some decent contention around the 109.50 region so far this week.

In the meantime, 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 continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered 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: Flash Q3 GDP Growth Rate, Durable Goods Orders, Initial Claims (Thursday) – PCE/Core PCE Price Index, Personal Income/Spending, Pending Home Sales, Final 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. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.38% at 110.13 and faces the immediate up barrier at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the flip side, the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).