USD Index regains the smile and targets 113.00 ahead of key data

• The index attempts a recovery following Thursday’s pullback.
• US yields correct lower after the post-CPI jump.
• Retail Sales, flash Consumer Sentiment next on tap in the docket.

The greenback, in terms of the USD Index (DXY), reverses two consecutive daily pullbacks and looks to reclaim the 113.00 neighbourhood at the end of the week.

USD Index focuses on data

The index manages to attract some buyers after the sharp decline following higher-than-expected inflation figures during September (+8.2% YoY).

The daily bounce in the dollar comes in tandem with a corrective move in US yields across the curve after hitting fresh multi-year highs in the previous session. The underlying robust momentum in yields appears bolstered by the already firm conviction of a 75 bps rate hike by the Fed at the November 2 gathering, which remains propped up by the persistent elevated inflation.

In the US data space, Retail Sales and the flash Michigan Consumer Sentiment will take centre stage later in the NA session along with Business Inventories  and Export/Import Prices.

What to look for around USD

The dollar gives some signs of life following the steep drop in the wake of the release of US inflation figures during September.

In the meantime, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Retail Sales, Flash Michigan Consumer Sentiment, Business Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.19% at 112.66 and faces the next up barrier at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the other hand, the breakdown of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).