USD Index appears cautious around 104.30 ahead of Powell

• The index trades without clear direction in the low-104.00s.
• US yields lose some momentum following Monday’s uptick.
• All the attention will be on Powell’s semiannual testimony.

The USD Index (DXY), which gauges the greenback vs. a basket of its main rivals, exchanges gains with losses around 104.30 ahead of the opening bell in the old continent on turnaround Tuesday.

USD Index focuses on Powell

The index remains directionless in the low-104.00s following two consecutive daily pullbacks amidst steady prudence ahead of the semiannual testimony by Chief Powell later in the European afternoon.

In the meantime, yields appears slightly tilted to the negative side and continue to navigate in the upper end of the rally in place since the beginning of February. The move higher in yields has been underpinned by the resumption of the hawkish narrative from most Fed speakers, which has been equally propped up by better-than-expected results from US fundamentals and speculation of a higher terminal rate (5.0%-5.25%).

Later in the US calendar, investors expect Chair Powell to reiterate his recent message when he testifies before the Senate Committee on Banking, Housing, and Urban Affairs. Data wise, Wholesale Inventories, the IBD/TIPP Economic Optimism index and Consumer Credit Change are also due later in the NA session.

What to look for around USD

The index keeps the erratic performance well in place around the 104.30 region so far on Tuesday.

The probable pivot/impasse in the Fed’s normalization process narrative is expected to remain in the centre of the debate along with the hawkish message from Fed speakers, all after US inflation figures for the month of January showed consumer prices are still elevated, the labour market remains tight and the economy maintains its resilience.

The loss of traction in wage inflation – as per the latest US jobs report - however, seems to lend some support to the view that the Fed’s tightening cycle have started to impact on the still robust US labour markets somewhat.

Key events in the US this week: Powell’s Semiannual Monetary Policy Report, Wholesale Inventories, Consumer Credit Change (Tuesday) – MBA Mortgage Applications, ADP Employment Change, Balance of Trade, Powell’s Semiannual Monetary Policy Report, Fed’s Beige Book (Wednesday) – Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Monthly Budget Statement (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Persistent narrative for a Fed’s tighter-for-longer stance. Terminal rates near 5.5%? Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is losing 0.09% at 104.20 and the breakdown of 104.09 (weekly low March 1) would open the door to 103.45 (55-day SMA) and finally 102.58 (weekly low February 14). On the flip side, the next resistance emerges at 105.35 (monthly high February 27) seconded by 105.63 (2023 high January 6) and then 106.56 (200-day SMA).