USD Index weakens to 3-month lows near 107.40

• The index remains well on the defensive near 107.40.
• The persistent risk-on trade keeps hurting the dollar.
• Flash Michigan Consumer Sentiment next of note in the docket.

The dollar keeps losing ground and navigates an area last seen back in mid-August in the mid-107.00s when tracked by the USD Index (DXY) on Friday.

USD Index weaker post-CPI, risk-on mood

The index adds to Thursday’s post-CPI acute sell-off and flirts with the 107.50 region at the end of the week on the back of the robust performance of the risk complex and the loss of momentum in US yields across the curve.

The index drops to multi-week lows pari passu with markets repricing the Fed’s normalization process in the next months, where the central bank is expected to slow the pace of the upcoming interest rate hikes and turn to a more dovish stance.

In the US data space, the sole release will be the advanced print of the Michigan Consumer Sentiment for the month of November.

What to look for around USD

The index extends the sharp decline in the aftermath of US inflation figures and against the backdrop of a firmer sentiment in the risk-linked galaxy.

In the meantime, investors’ repricing of a probable pivot in the Fed’s policy now emerges as a fresh and quite reliable source of weakness for the dollar, in line with a corrective decline in US yields across the curve.

Key events in the US this week: Preliminary Michigan Consumer Sentiment (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 0.49% at 107.38 and the breakdown of 104.87 (200-day SMA) would open the door to 104.63 (monthly low August 10) and finally 103.67 (weekly low June 27). On the other hand, the next up barrier aligns at 109.06 (100-day SMA) seconded by 111.00 (55-day SMA) and then 113.14 (monthly high November 3).