• The index fades Friday’s pullback and reclaims 110.00 and beyond.
• The risk complex starts the week on the negative foot.
• All the attention will be on the FOMC event later in the week.

The greenback, in terms of the USD Index (DXY), leaves behind Friday’s daily drop and refocuses on the 110.00 mark and above at the beginning of the week.

USD Index shifts the attention to the Fed

The index manages to keep the trade in the upper end of the recent range near the 110.00 neighbourhood amidst renewed weakness in the risk-associated universe, while market participants are expected to remain prudent ahead of the FOMC event due later in the week.

So far, investors’ preference look tilted towards a 75 bps rate hike on Wednesday, as the probability of a full-point rate raise has been losing traction following its sudden emergence post-US CPI hype.

The move higher in the dollar appears so far underpinned by the small advance in US yields across the curve.

In the docket, short-term Bill Auctions are due in the first turn seconded by the NAHB Housing Market Index.

What to look for around USD

The dollar appears reluctant to correct lower and maintains the trade in the upper end of the range near the 110.00 zone so far on Monday.

Bolstering the dollar’s underlying positive stance appears the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

Looking at the more macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: NAHB Index (Monday) – Building Permits, Housing Starts (Tuesday) – MBA Mortgage Applications, Existing Home Sales, FOMC Interest Rate decision, Powell press conference (Wednesday) – Initial Claims, CB Leading Index (Thursday) – Flash Manufacturing/Services PMIs, Powell speech (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is advancing 0.39% at 110.07 and a break above 110.26 (weekly high September 16) would expose 110.78 (2022 high September 7) and then 111.90 (weekly high September 6 2002). On the other hand, the next support emerges at 107.68 (monthly low September 13) followed by 107.58 (weekly low August 26) and finally 105.82 (100-day SMA).