US DOLLAR INDEX LOOKS VIGILANT AROUND 106.50 AHEAD OF DATA, FOMC MINUTES

• DXY trades without a clear direction in the mid-106.00s.
• US ISM Non-Manufacturing next of tap in the US docket.
• Investors’ attention remains on the release of the FOMC Minutes.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main rival currencies, exchanges gains with losses around 106.50 on Wednesday.

US DOLLAR INDEX FOCUSES ON DATA, RECESSION TALKS

Following three consecutive daily advances, including new cycle tops near 106.80 on July 5, the upside momentum in the index now looks dubitative and gyrates around the 106.50 zone following the opening bell in Euroland.

Indeed, speculation of a global slowdown accelerated on Tuesday and weighed on the risk complex, which in turn morphed into extra legs to the dollar amidst declining yields, lower stock prices and a deep retracement in crude oil.

So far, US yields attempt a lacklustre rebound against the backdrop of a broad downtrend in place since mid-June and amidst persistent market chatter surrounding a potential global recession.

In the NA session, the ISM Non-Manufacturing will grab initial attention followed by weekly Mortgage Applications and the S&P Global Services PMI, all ahead of the publication of the FOMC Minutes of the June meeting, where the Committee could unveil further details regarding the debate around a potential 75 bps rate hike later this month.

What to look for around USD

The index rose to nearly 2-decade peaks near 106.80 amidst the sharp contraction in the risk-associated universe on turnaround Tuesday.

Further support for the dollar is expected to come from the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, chatter of US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: MBA Mortgage Applications, Final Services PMI, ISM Non-Manufacturing, FOMC Minutes (Wednesday) – ADP Report, Initial Claims, Balance of Trade (Thursday) – Non-farm Payrolls, Unemployment Rate, Wholesale Inventories, Consumer Credit Change (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is down 0.01% at 106.47 and faces the next support at 103.67 (weekly low June 27) seconded by 103.41 (weekly low June 16) and finally 101.29 (monthly low May 30). On the other hand, a break above 106.79 (2022 high July 5) would expose 107.00 (round level) and then 107.31 (monthly high December 2002).