USD Index drops to five-week lows near 105.40, looks at data

• The index extends the bearish move to the 105.40 region.
• US yields look poised to continue their march south on Tuesday.
• Flash Manufacturing/Services PMIs take centre stage later in the session.

The USD Index (DXY), which measures the greenback vs. a basket of its main competitors, remains under pressure and drops to multi-week lows near 105.40 on turnaround Tuesday.

USD Index weaker on risk-on trade, looks at data

The index loses ground for the fourth session in a row so far on Tuesday, coming under further pressure as geopolitical concerns appear somewhat alleviated, while US yields also lose some momentum.

When it comes to monetary policy, markets continue to expect the Federal Reserve to keep its interest rates unchanged at its November 1 meeting, although uncertainty around a potential rate hike in December remains high for the time being.

In the US docket, advanced Manufacturing and Services PMIs for the month of October will be in the centre of the debate later in the NA session.

What to look for around USD

The index accelerates its decline and breaks the 106.00 support with certain conviction on Tuesday

In the meantime, support for the dollar keeps coming from the good health of the US economy, which at the same time appears underpinned by the renewed tighter-for-longer stance narrative from the Federal Reserve.

Key events in the US this week: Flash Manufacturing/Services PMIs (Tuesday) – MBA Mortgage Applications, New Home Sales, Chair Powell (Wednesday) - Initial Jobless Claims, Durable Goods Orders, Advanced Goods Trade Balance, Flash Q4 GDP Growth Rate (Thursday) – PCE, Core PCE, Personal Income, Personal Spending, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persevering debate over a soft or hard landing for the US economy. Incipient speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China and the Middle East.

USD Index relevant levels

Now, the index is losing 0.20% at 105.38 and the next support emerges at 105.36 (monthly low October 24) ahead of 104.42 (weekly low September 11) and then 103.32 (200-day SMA). On the other hand, a breakout of 106.78 (weekly peak October 13) could expose 107.34 (2023 high October 3) and finally 107.99 (weekly high November 21 2022).