USD Index remains under pressure in the low-106.00s

• The index adds to Tuesday’s drop near the 106.00 region.
• Geopolitics-led risk aversion loses steam on Wednesday.
• Markets’ attention is expected to be on the release of US Retail Sales.

The greenback, when gauged by the USD Index (DXY) remains on the defensive and trades close to the 106.00 neighbourhood midweek.

USD Index looks at data, geopolitics

The index adds to Tuesday’s retracement, although it so far manages to keep the trade above the key 106.00 barrier after Tuesday’s bounce off fresh multi-week lows near 105.30.

Indeed, the dollar resumes the downside after the bout of risk aversion that lifted the index continues to dwindle on Wednesday.

In the US money markets, yields show some signs of life and print humble gains across the curve, always against the backdrop of further repricing of a Fed’s pivot in its monetary policy.

In the US docket, Retail Sales will be in the centre of the debate along with MBA Mortgage Applications, Industrial Production, Business Inventories, the NAHB index and TIF Flows.

In addition, NY Fed J.Williams (permanent voter, centrist) and FOMC’s C.Waller (permanent voter, dove) are also due to speak along with another testimony by FOMC’s S.Barr.

What to look for around USD

Price action around the dollar remains depressed and relegates the index to navigate in the area of multi-month lows near the 106.00 zone.

In the meantime, the greenback is expected to remain under the microscope amidst persistent investors’ repricing of a probable slower pace of the Fed’s rate path in the upcoming months.

Key events in the US this week: MBA Mortgage Applications, Retail Sales, Industrial Production, Business Inventories, NAHB Index, TIC Flows (Wednesday) – Building Permits, Initial Jobless Claims, Housing Starts, Philly Fed Index (Thursday) – CB Leading Index, Existing Home Sales (Friday).

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

USD Index relevant levels

Now, the index is retreating 0.7234 at 106.21 and the breakdown of 105.34 (monthly low November 15) would open the door to 104.94 (200-day SMA) and finally 104.63 (monthly low August 10). On the other hand, the next up barrier aligns at 109.11 (100-day SMA) seconded by 110.87 (55-day SMA) and then 113.14 (monthly high November 3).