US Dollar Index looks for direction around 94.30 ahead of key data

• DXY alternates gains with losses in the low-94.00s.
• US 10-year yields slip back below the 1.50% level.
• ISM Manufacturing, PCE next of note in the US docket.

The US Dollar Index (DXY), which gauges the greenback vs. a basket of its main rival currencies, trades without a clear direction in the low-9400s at the end of the week.

US Dollar Index focuses on data, yields

The index navigates within a narrow range around 94.30 on Friday, following the side-lined fashion that prevails in the rest of the markets.

The dollar lost momentum on Thursday despite hitting new 2021 highs around 94.50 on the back of some loss of upside traction in US yields and the rebound in the risk complex from (mostly) oversold levels.

Indeed, US yields drift lower along the curve, with the short end trading below 0.30% and the belly slipping back below the key 1.50% level so far.

The greenback, in the meantime, remained apathetic and practically ignored recent Fedspeak (Powell included), which added further strength to the transitory narrative around inflation (although elevated prices might now last longer than anticipated), underpinned the case for QE tapering “soon” and reiterated that the labour market need to improve further to reach the tapering threshold.

In the docket, inflation measured by the PCE and the ISM Manufacturing take centre stage seconded by Markit’s Manufacturing PMI and the final print of the Consumer Sentiment for the current month.

What to look for around USD

The index recedes from recent 2021 tops around 94.50 amidst some profit taking mood, a mild recovery in the risk complex in light of the sharp selloff witnessed in past sessions and a soft note in US yields. The dollar, in the meantime, remains underpinned by markets’ adjustment to prospects for a “soon” start of the tapering process, probable rate hikes at some point during next year and the march higher in US yields. Positive results from US fundamentals coupled with alleviating concerns regarding the progress of the Delta variant should also add to the constructive view of the dollar in the near/medium term.

Key events in the US this week: PCE, Final Manufacturing PMI, ISM Manufacturing, Personal Income/Spending, final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Biden’s multi-trillion plan to support infrastructure and families. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is losing 0.01% at 94.25 and a break above 94.50 (2021 high Sep.30) would open the door to 94.74 (monthly high Sep.25 2020) and then 95.00 (round level). On the flip side, the next down barrier emerges at 93.72 (weekly high Aug.20) seconded by 92.84 (55-day SMA) and finally 91.94 (monthly Sep.3).