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2 Jun 2022

The US dollar eases amid the return of risk appetite

The Index Today

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main competitors, comes under some selling pressure and tests daily lows near 102.30 on Thursday.

US Dollar Index looks to risk trends, docket-
The index sheds ground after two consecutive daily gains in response to the re-emergence of the investors’ appetite for the risk-associated universe, all against the backdrop of a renewed upside momentum in US yields.

On the latter, the short end of the curve approaches the 2.70% area and the belly of the curve seems to have retargeted the key 3.00% level.

Later in the US data space, the ADP Employment Change is due seconded by usual Initial Claims and Factory Orders. In addition, Dallas Fed L.Logan (2023 voter) and Cleveland Fed L.Mester (voter, hawk) are due to speak.
What to look for around USD
The dollar meets some resistance in the low-102.00s so far this week, as investors seem to have re-shifted their interest to the riskier assets.

Renewed weakness in the dollar came in response to the rising perception that inflation might have peaked in April, which in turn supports the idea that the Fed may not need to be as aggressive as market participants expect when it comes to raising the Fed Funds rates.

In the meantime, the Fed’s divergence vs. most of its G10 peers coupled with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy are all factors still supportive of a stronger dollar in the next months.
US Dollar Index relevant levels-
Now, the index is retreating 0.31% at 102.23 and faces the next contention at 101.31 (55-day SMA) followed by 101.29 (monthly low May 30) and then 99.81 (weekly low April 21). On the upside, a break above 102.73 (weekly/monthly high June 1) would open the door to 105.00 (2022 high May 13) and finally 105.63 (high December 11 2002).

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