US Dollar Index: Bears remain in control below 102.00

• DXY drops and bounces off fresh lows near 101.40.
• US markets remain closed due to the Memorial Day holiday.
• FOMC’s Waller speaks later in the session.

The greenback, when tracked by the US Dollar Index (DXY), remains on the defensive although it manages to rebound from earlier lows in the 102.40/35 band on Monday.

US Dollar Index in multi-week lows

The index sheds ground for the third consecutive session at the beginning of the week, always below the 102.00 mark and amidst the broad-based investors’ preference for the riskier assets.

No activity in the US markets should leave the price action to the mercy of the broader risk appetite trends on Monday, while market participants continue to assess the potential steps from the Federal Reserve on its way to normalize the monetary conditions, particularly via interest rate hikes.

The US docket is empty on Monday, with only FOMC’s C.Waller (permanent voter, hawk) due to speak later in the NA session.

What to look for around USD

The dollar slipped back to multi-week lows at the end of last week mainly in response to the investors’ shift to the risk-associated assets.

Also weighing on the greenback appeared the rising perception that inflation might have peaked in April, which in turn supports the idea that the Fed may not need to be as aggressive as market participants expect when it comes to raising the Fed Funds rates.

In the meantime, the Fed’s divergence vs. most of its G10 peers coupled with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy are all factors still supportive of a stronger dollar in the next months.

Key events in the US this week: House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, Final Manufacturing PMI, ISM Manufacturing, Construction Spending, Fed Beige Book (Wednesday) – ADP Employment Change, Initial Claims, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Services PMI, ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: Powell’s “softish” landing… what does that mean? Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is retreating 0.08% at 101.55 and faces the next support at 101.38 (monthly low May 30) followed by 101.11 (55-day SMA) and then 99.81 (weekly low April 21). On the other hand, the breakout of 105.00 (2022 high May 13) would open the door to 105.63 (high December 11 2002) and finally 106.00 (round level).