US Dollar Gives Away Part of Earlier Momentum

The US Dollar Index (DXY), which tracks the greenback vs. a basket of its main competitors, gives away part of the earlier spike above the 104.00 mark on Monday.

Now, the index is gaining 0.21% at 103.87 and the breakout of 104.18 (2022 high May 9) would open the door to 105.00 (round level) and finally 105.63 (high December 11 2002). On the other hand, the next support emerges at 102.35 (low May 5) seconded by 99.81 (weekly low April 21) and then 99.57 (weekly low April 14).

The corrective pullback in the dollar comes against the backdrop of an equally tepid move in US yields, which leave behind earlier peaks following the opening bell in Wall St.

In the US data space, Wholesale Inventories expanded 2.3% MoM in March ahead of a 3-month/6-month Bill Auctions. The index manages well to cling to weekly gains after facing a wave of selling orders in the wake of new 19-year high around 104.20.

The US dollar regained its solid appeal and managed to record new highs beyond the 104.00 mark, as investors’ expectations for a tighter rate path by the Federal Reserve have been nothing but reinforced by the FOMC event on Wednesday. The constructive stance in the dollar is also underpinned by the current elevated inflation narrative and the solid health of the labour market as well as bouts of geopolitical tensions and higher US yields.

Key events in the US this week: Wholesale Inventories (Monday) – MBA Mortgage Applications, Inflation/Core Inflation Rate (Wednesday) – Producer Prices, Initial Claims (Thursday) – Flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Future of Biden’s Build Back Better plan.