US DOLLAR INDEX COMES UNDER PRESSURE AND RETREATS FROM 3-DAY HIGHS

• The index climbs to the 106.50 region and recedes afterwards.
• The risk complex regains momentum and weighs on the dollar.
• ISM Non-Manufacturing, Factory Orders next of relevance in the docket.

The US Dollar Index (DXY), which tracks the greenback vs. a basket of its main competitors, revisits the 106.00 neighbourhood after the initial bullish attempt faltered in the 106.50/55 band on Wednesday.

US DOLLAR INDEX LOOKS TO DATA, TAIWAN

The index has rapidly faded the initial climb to the mid-106.00s, as the risk aversion sentiment appears to have lost some impulse on Wednesday.

The move lower in the buck comes in line with a mild continuation of Tuesday’s upside in US yields across the curve, also reflecting the better mood in the risk-associated universe.

In the meantime, investors’ attention remains on Pelosi’s trip to Taiwan amidst escalating tensions between Washington and Beijing.

In the US data space, weekly MBA Mortgage Applications are due in the first turn ahead of the final S&P Global Services PMI, Factory Orders and the ISM Non-Manufacturing. In addition, Philly Fed P.Harker (2023 voter, hawk) is due to speak.

What to look for around USD

Risk aversion looks diminished and the index gives away part of the advance to the mid-106.00s on Wednesday.

The very-near-term outlook for the dollar has deteriorated somewhat in recent sessions, particularly following the latest US GDP figures and the prospects for further tightening by the Fed in the next months, which carry the potential to drag further the economy into the contraction territory.

Among the positives for the buck still emerge the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: MBA Mortgage Applications, Factory Orders, ISM Non-Manufacturing (Wednesday) – Balance of Trade, Initial Claims (Thursday) – Non-Farm Payrolls, Unemployment Rate, 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.