US Dollar shows signs of retreat as Indian summer rally ends on Tuesday

• The Greenback is losing steam against most major peers for this week.
• All eyes are on PPI numbers this Wednesday, CPI on Thursday.
• The US Dollar Index settles below 106 and could result in more losses with the longer-term rally ending overnight.

The US Dollar (USD) sees markets looking beyond recent developments in Israel and Gaza. It appears that several countries and participants around this war do not want to see further escalation of violence. This means, for now, a proxy war is out of the way. Safe havens are starting to abate with the Swiss Franc and the Greenback retreating to weaker levels.

Meanwhile, traders have used the brief moment of US Dollar strength on Monday to sell the US Dollar, steering it substantially lower throughout Tuesday, after comments from several Federal Reserve officials signaled the Fed is done hiking. With Producer Price Index (PPI) numbers today and Consumer Price Index (CPI) data on Thursday, markets will now look for clues if the Greenback needs to be devalued even more and might see the US Dollar Index (DXY) print more losses later this week. 

Daily digest: US Dollar wounded

• At 11:00 GMT, the Mortgage Bankers Association (MBA) will issue its weekly Mortgage Applications Index. Previous number was at -6% week-on-week.
• Near 12:30 GMT the main event for Wednesday arrives with the Producer Price Index numbers. For the monthly gauge, expectations are for it to head from 0.7% to 0.4%. The yearly number is expected to stay stable at 1.6%. The monthly Core PPI, without Food and Energy, is expected to stay stable at 0.2%. The yearly Core PPI is expected to head from 2.2% to 2.3%.
• Christopher Waller from the Board of Governors at the Fed is due to speak at 14:15 GMT. Raphael Bostic from the Atlanta Fed will be taking the stage near 16:15 GMT.
• The US Treasury is looking for some funding in the market. This time the 10-year note is up for auction at 17:00 GMT. 
• Traders can look for clues or confirmation on the possible end of rate hikes with the Fed’s latest FOMC minutes due at 18:00 GMT.
• Equities are a bit mixed with Asian stocks up and European stocks down. That last one is not a big surprise after the substantial surge European equities had on Tuesday. It must be some small profit-taking action there. US equity futures are flat and hold on to Tuesday’s gains. 
• The CME Group FedWatch Tool shows that markets are pricing in an 84.3% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
• The benchmark 10-year US Treasury yield trades at 4.63%, which is still in the lower range of this week. 

US Dollar Index technical analysis: Did it fall off its pedestal?

The US Dollar snapped a very important trendline on the US Dollar Index chart. This is true for both the weekly and the daily time frames. The Indian summer rally that started in July and extended all the way up to last week came to an end with the DXY breaking below the respected trendline from throughout that period. From a pure technical point of view, this means some US Dollar weakness will further take place before initial support is met.

The DXY opens below 106, which means that that will be the first initial hurdle to recapture. On the topside, 107.19 is important to see if the DXY can get a daily close above that level. If this is the case, 109.30 is the next level to watch. 

On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn. Instead, look for 105.12 to keep the DXY above 105.00. If that does not do the trick, 104.33 will be the best level to look for some resurgence in US Dollar strength with the 55-day Simple Moving Average (SMA) as a support level.