US Dollar strengthens ahead of key US macro data

• The Greenback is trading back firmer against several major peers. 
• US yields retreat further, back to more favourable levels for the Greenback.
• The US Dollar Index broke back above 106.00 and is set to have a calm trading day. 

The US Dollar (USD) made a staggering return on Tuesday and looks to consolidate these gains on Wednesday. The US Dollar Index was close to post a new high for this trading week, though it retreated just near the US closing bell as Microsoft earnings missed estimates and Alphabet soared. The US Dollar is expected to trade in a rather tight range on Wednesday ahead of the European Central Bank meeting on Thursday.  

On the economic data front, a very light calendar is at hand for Wednesday, with no real catalytic moves expected. The only element at play will be the New Home Sales data. Although US Federal Reserve (Fed) Chairman Jerome Powell is set to deliver a speech, it will be only opening remarks, introducing 2023 Moynihan Prize recipient Alan Blinder at the 2023 Moynihan Lecture in Social Science and Public Policy in Washington.

Daily digest: US Dollar enters calm before the storm

• First print for this Wednesday comes around 11:00 GMT, with the Mortgage Bankers Association (MBA) issuing their weekly Mortgage Applications. Mortgage applications contracted 6.9% a week earlier. 
• At 14:00 GMT, the New Home Sales number will be issued. Expectations are for a broadly steady number, from previous 0.675 million to 0.68 million. 
• The Energy Information Administration (EIA) is due to release the weekly crude stockpile changes. The previous week  saw a drawdown of 4.491 million barrels, and expectations are for  a small build of 0.239 million barrels for this week. 
• The US Treasury will auction a 5-year Note  at 17:00 GMT.
• Equities are up in Asia, with both Japan and China seeing their star indices topping over 0.5%. European and US futures are struggling more following the mixed earnings from Alphabet and Microsoft after the US closing bell on Tuesday. Investors are looking forward to Meta’s earnings after the US closing bell this Wednesday.
• The CME Group’s FedWatch Tool shows that markets are pricing in a 99.6% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
• The benchmark 10-year US Treasury yield trades at 4.83% and is back at levels where markets feel more at ease. With the retreat away from 5%, the US Dollar has been able to strengthen again. 

US Dollar Index technical analysis: Kings don’t die that easily

The US Dollar is playing chess with the markets: while markets on Monday thought they had a check-mate game against the Greenback, on Tuesday it cleared out the playing board by knocking over nearly all pawns that markets had against it. The US Dollar Index (DXY) is back to flat for the week and with ECB, US GDP and US PCE still to come, the DXY could swing in any direction. 

The DXY is consolidating above 106.00 and looks to keep it in a tight range today as no real market moving events are at hand for this Wednesday. Look for a possible jump above 106.42, the high of last Friday. If that level can be reclaimed by US Dollar bulls, then look for 107.00 on the topside again. 

On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn and now completely has lost its importance. Instead, look for 105.12, which is a pivotal historic line and almost falls in line with the 55-day Simple Moving Average (SMA) to keep the DXY above 105.00, and which worked already quite ahead of it on Tuesday. Should that fail to do the trick, a big air pocket could develop and see the DXY drop to 103.74, near the 100-day SMA before finding ample support.