USD Index drops to three-day lows near 106.50 ahead of data, Fedspeak

• The index adds to Wednesday’s pullback and revisits 106.50.
• US yields correct lower from recent peaks.
• Weekly Claims, Balance of Trade, Fedspeak next on tap.

The greenback extends further its ongoing correction from 2023 peaks near 107.30 when gauged by the USD Index (DXY).

USD Index focuses on data and Fed speakers

The index retreats for the second consecutive session and revisits the 106.50 region on the back of further improvement in the risk complex and some profit taking in light of the recent strong gains in the dollar.

In addition, the corrective knee-jerk in US yields across different time frames also contributes to the daily downtick in the index, amidst unchanged speculation of further tightening by the Federal Reserve before the end of the year.

In the US calendar, usual weekly Initial Claims are due seconded by Balance of Trade figures and speeches by Cleveland Fed L. Mester (2024 voter, haw), Richmond Fed T. Barkin (2024 voter, centrist), San Francisco Fed M. Daly (2024 voter, hawk) and FOMC Governor M. Barr (permanent voter, centrist).

What to look for around USD

The dollar’s rally has so far met initial resistance in the 107.30 region, always bolstered by the relentless march north in US yields.

In the meantime, support for the dollar keeps coming from the good health of the US economy, which at the same time appears underpinned by the renewed tighter-for-longer stance narrative from the Federal Reserve.

Key events in the US this week: Initial Jobless Claims, Balance of Trade (Thursday) – Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change (Friday).

Eminent issues on the back boiler: Persevering debate over a soft or hard landing for the US economy. Incipient speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China.

USD Index relevant levels

Now, the index is losing 0.19% at 106.57 and faces the next support at 105.65 (low September 29) ahead of 104.42 (weekly low September 11) and then 103.14 (200-day SMA). On the flip side, a breakout of 107.34 (2023 high October 3) would open the door to 107.99 (weekly high November 21 2022) and finally 110.99 (high November 10 2022).