USD Index struggles for direction around 105.80

• The index trades without direction below 106.00.
• Further tightening by the Fed is not entirely ruled out.
• Investors’ attention will be on US inflation tracked by the CPI.

The greenback, in terms of the USD Index (DXY), alternates gains with losses around 105.80 at the beginning of the week.

USD Index looks at yields and data

Last week’s strong rebound in the index seems to have met decent resistance around the 106.00 neighbourhood for the time being.

Furthermore, the bounce in the dollar was underpinned by the equally firm move higher in US yields, particularly on the short end of the curve, in response to increasing speculation of further tightening by the Federal Reserve.

On the latter, recent Fedspeak appears to bolster the tighter-for-longer stance from the Fed, a vision that comes in stark contrast to investors’ perception that the central bank is done hiking rates.

Looking at the US docket, markets’ attention is expected to be on the publication of US inflation figures gauged by the CPI and Producer Prices on Tuesday and Wednesday, respectively, as well as Retail Sales.

What to look for around USD

The index seems to be struggling to surpass the 106.00 barrier so far at the beginning of the week, all amidst the multi-session recovery sparked following lows in the sub-105.00 region recorded earlier in the month.

In the meantime, the dollar appears to have regained some poise in response to recent hawkish Fedspeak and on the back of the broad-based good health of the US economy, while inflation is still running well above the Fed’s target.

Propping up an impasse of the Fed’s tightening campaign, however, emerges the continuation of some cooling of the US labour market, as per the latest prints from Nonfarm Payrolls in October (+150K jobs).

Key events in the US this week: Inflation Rate (Tuesday) – MBA Mortgage Applications, Producer Prices, Retail Sales, Business Inventories (Wednesday) - Initial Jobless Claims, Philly Fed Index, Industrial Production, NAHB Index, TC Flows (Thursday) – Building Permits, Housing Starts (Friday).

Eminent issues on the back boiler: Persistent debate over a soft or hard landing for the US economy. Speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China. Potential spread of the Middle East crisis to other regions.

USD Index relevant levels

Now, the index is down 0.05% at 105.75 and initial support is seen at 104.84 (monthly low November 6) ahead of 104.42 (weekly low September 11) and then 103.60 (200-day SMA). On the other hand, the breakout of 106.00 (weekly high November 10) could pave the way to a move to 106.88 (weekly high October 26) and finally 107.34 (2023 high October 3).