The greenback has reversed the recent gains by dropping back to the 95.40 Tuesday in the US Dollar Index (DXY). The index generated benefits after hitting new cycle tops near 95.60 at the beginning of the week. However, most of the generated benefit was due to the bounce in US yields and overestimated prints by the NY Empire State Index.
The changes in the dollar value on Tuesday were added on top of the previous losses of momentum in US yields that occurred across the curve ahead of the opening season in the Euroland.
Meanwhile, the dollar remained relatively stable, even after the virtual meeting between US president Joe Biden and the Chinese leader, Xi Jinping, which produced no market-changing results.
The US had a busy calendar on Tuesday, as the Retail Sales for October were at the top of the news with a hike higher than estimations. In addition, the Industrial Production, the NAHB Index, and Business Inventories take place on Tuesday as well. Regarding this event, the Atlanta Fed, R. Bostic, Richmond Fed T. Barkin, Philly Fed P. Harker, and San Francisco Fed M. Daly are all due to speak in the session.
Outlook on the greenback
The DXY index hit new cycle record highs that were last seen in the summer of 2020 while the dollar hit 95.60. Considering the current elevated inflation, any higher movement of the currency remains underpinned by a higher-for-longer narrative. Which, in return, results in empowering the US yields and the interest rate that the Federal Reserve imposes, scheduled at some point in H2 2022. Any further support for the dollar comes from improving the labor market or Biden’s infrastructure bill.
Some of the key events in the US calendar this week are the Retail Sales, Industrial Production, Business Inventories, NAHB Index, TIC Flows, scheduled for Tuesday, Building Permits, Housing Starts Scheduled for Wednesday, Initial Claims, Philly Fed Index Scheduled for Thursday.
Important issues in this week: Biden’s administration’s conflict with China about the trade deficit. Debt ceilings. Geopolitical risks regarding Afghanistan and change of power.
US Dollar Index
The index is now losing around 0.05% in value and is at 95.48. It should break above the 95.59 level would open the door for the range of 95.71. The dollar’s monthly low since Jun.10 in 2020 and 97.80, the dollar’s high since Jun.30 in 2020.
On the other hand, the next down barrier is approximately 93.87, the weekly low November 9. The estimation for the second and third rates are 93.68, the 55-day SMA, and 93.27, the monthly low October 28.