The U.S. dollar index (DXY), a weighted geometric index of the value of the U.S. dollar relative to a basket of six major currencies, gapped up 0.45% at the open on Tuesday and surged to an intra-day high of 97.47, up 1.42%, as the currency market further digested Friday’s speech by Federal Reserve Chairwoman Janet Yellen and news over the weekend that Greece might miss next month’s debt payment to the IMF.

In her speech delivered before the Greater Providence Chamber of Commerce in Rhode Island, Ms. Yellen appeared to be confident that the central bank is on track to raise interest rates this year, but will likely proceed cautiously because the job market hasn’t fully healed, inflation is low, and economic growth has again disappointed.

Prior to Yellen’s speech, the Bureau of Labor Statistics, the U.S. Department of Labor, said that the core Consumer Price Index (CPI) for all items less food and energy rose by 1.8% in April over the last year, while the food index rose 2.0%. The currency markets seemed to go along with some Wall Street economists who believe that the April core CPI at 1.8% could lead the case for the Fed to hike interest rates. 

Unless the Fed is moving its goalposts, the Federal Reserve no longer emphasizes the consumer price index (CPI) as its official 2.0% inflation target. Instead, it has adopted the personal consumption expenditures (PCE) index, particularly the core PCE with the volatile prices of food and energy stripped out. 

According to the April 30 report from the Bureau of Economic Analysis (BEA), the U.S. Department of Commerce, the March core PCE price index, excluding food and energy, increased 1.3 percent from March a year ago, well below the Fed’s inflation target of 2.0%.

The Greek debt crisis is back in the front burner again as Interior Minister Nikos Voutsis bluntly said in an interview over the weekend that Greece hasn’t got the money to make the 50 million euro IMF payment, due on June 5.

The euro and the British pound, weighted 57.6% and 11.9%, respectively, in the U.S. dollar index, have been under selling pressure since mid-May. The euro took a 1.36% nose dive last Tuesday after European Central Bank (ECB) Executive Board member Benoit Coeure announced that the ECB will front-load the quantitative easing (QE) 60 billion euro monthly bond buying, in May and June, in order for the central bank not to disrupt the market when trading volumes are lower in the summer.

The eurozone’s economic data continues to be mixed as the Markit's flash eurozone manufacturing Purchasing Managers' Index (PMI) came in at 52.3 for May, beating expectations of 51.8, compared to 52.0 in April. The service PMI dropped to 53.3 in May from 54.1 in April, missing the estimate of 53.9. The composite index, which combines the services and industrial sectors, came in at 53.4, compared to 53.9 for April, missing the Reuters forecast of 53.8. Any reading above 50 indicates expansion. 

The first-quarter GDP from the eurozone's three biggest economies, Germany, France and Italy, are mixed as Germany grew 0.3% in the quarter, but missed the consensus forecast for 0.5% growth in a Reuters poll. French and Italian GDP, on the other hand, rose 0.6% and 0.3% in the quarter, respectively, beating expectations of a 0.4% and 0.2% expansion. 

The Bank of England (BoE) Governor Mark Carney said on May 13 that the bank trimmed its gross domestic product (GDP) forecast for 2015 to 2.5%, from 2.9%, blaming low inflation and poor productivity as some of the catalysts behind the reduction. The BoE also lowered their 2016 GDP forecast from 2.9% to 2.6%. Last week, BoE policymakers voted 9-0 to keep interest rates on hold at 0.5%. 

From our technical viewpoint, the DXY broke out from the falling wedge last week and the projected price is 98.52. The DXY could continue its bullish uptrend as the index also just broke out the 50-day SMA. 

It will be a reality check this Friday when the second estimate of the first-quarter GDP will be released. The Fed’s Yellen expects the U.S. economy to strengthen while Wall Street economists forecast the first-quarter GDP second reading to contract 0.9%, compared to the initial reading of 0.2% growth. If the number comes in better than expected, the DXY could break the 98.52 level and move upward to retest the 100 technical resistance.