US Dollar Index looks offered around 99.00, attention remains on Ukraine

• DXY adds to recent losses and gyrates around 99.00.
• Risk-on mood creeps into the markets on Wednesday.
• Investors’ focus likely to remain on the Russia-Ukraine conflict.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main competitors, extends the recent bearishness to the 99.00 neighbourhood midweek.

US Dollar Index weighed down by risk appetite

The index retreats for the second session in a row on Wednesday, although it manages well to keep business around the key 99.00 barrier.

The re-emergence of the appetite for the risk-linked universe prompted a knee-jerk in the index after hitting new cycle peaks in the 99.40/45 band at the beginning of the week.

Indeed, news from the geopolitical scenario seems to have entered and impasse despite Russian forces continue the relentless advance into Ukraine, while the recent announcement that Ukraine will not be seeking NATO membership appears to have brought in some respite in the demand for the safe havens. Also collaborating with the latter, foreign ministers from both countries will meet in Turkey later in the week.

The better mood in the risk complex is also reflected in the extra bounce in US yields across the curve, where the short term regained the area of recent peaks past 1.60% , the belly approaches the 1.90% level and the long end flirts with 2.25%.

Not so interesting day data wise in the US docket, as Mortgage Applications tracked by MBA and JOLTs Job Openings are only due later in the session.

What to look for around USD

The index continues to correct lower after reaching new cycle peaks beyond the 99.00 barrier at the beginning of the week, always in response to increasing geopolitical concerns in Ukraine. The persevering bias towards the safe haven universe is predicted to keep supporting the dollar and the rest of its peers in the current context for the time being. Also supportive of the stronger buck appears the current elevated inflation narrative, the start of the Fed’s normalization of its monetary conditions later this month and the solid performance of the US economy. In the longer run, the renewed hawkish views from the BoE and the ECB carry the potential to undermine the expected move higher in the dollar.

Key events in the US this week: MBA Mortgage Applications (Wednesday) – CPI, Core CPI, Initial Claims, Monthly Budget Statement, Fed Quarterly Financial Accounts (Thursday) – Flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict under the Biden administration.

US Dollar Index relevant levels

Now, the index is losing 0.11% at 98.97 and a break above 99.41 (2022 high Mar.7) would open the door to 99.97 (high May 25 2020) and finally 100.00 (psychological mark). On the flip side, the next down barrier emerges at 97.73 (monthly high Feb.24) followed by 96.27 (55-day SMA) and then 95.67 (weekly low Feb.16).