• DXY retakes the 93.80 region following recent tops.
• US yields regain upside traction with 10y USTs approaching 1.70%.
• MBA Mortgage Applications, Fed’s Quarles next on tap in the docket.

Following recent 3-week lows near 93.50, the US Dollar Index (DXY) manages to regain some traction and retake the 93.80/85 band on Wednesday.

US Dollar Index looks risk trends, yields

The index alternates gains with losses midweek and looks to leave behind the multi-session leg lower sparked soon after the dollar clinched new 2021 highs past 94.50 on October 12.

The ongoing rebound in the buck comes in response to higher US yields, as the 10-year reference note advance above 1.67% - levels last seen back in May - and yields of the 30-year note surpass the 2.10% level to record new multi-day peaks.

On Tuesday, FOMC Governor M.Bowman suggested that the elevated inflation could linger for longer, while her colleague C.Waller defended the start of the tapering process as soon as in November.

Later in the NA session, the usual weekly report by the MBA on Mortgage Applications will be the sole release in the calendar ahead of the EIA’s report and the speech by FOMC’s Governor R.Quarles (permanent voter, centrist).

What to look for around USD

The index seems to have met some decent contention in the mid-93.00s for the time being (October 19). The corrective move in the dollar came in response to the repricing of several central banks particularly in light of elevated inflation and the firm improvement in the risk complex. Supportive Fedspeak, an anticipated start of the tapering process, higher yields and the rising probability that high inflation could linger for longer remain as the exclusive factors behind the constructive outlook for the buck in the near-to-medium term.

Key events in the US this week: Claims, Philly Fed Index, CB Leading Index, Existing Home Sales (Thursday) – Flash Manufacturing PMI (Friday).

Eminent issues on the back boiler: Persistent uncertainty around Biden’s multi-billion Build Back Better plan. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is gaining 0.07% at 93.85 and a break above 94.56 (2021 high Oct.12) would open the door to 94.74 (monthly high Sep.25 2020) and then 94.76 (200-week SMA). On the flip side, the next down barrier emerges at 93.50 (monthly low October 19) followed by 93.22 (55-day SMA) and finally 92.98 (weekly low Sep.23).