US Dollar Index remains offered above 104.00, looks to data, Powell

• DXY navigates the low-104.00s and adds to Monday’s losses.
• US yields edge a tad higher following Monday’s inactivity.
• Chicago Fed Index, Existing Home Sales next on tap.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, adds to the pessimism seen at the beginning of the week and retests the 104.20 area on turnaround Tuesday.

US Dollar Index vigilant ahead of Powell

The index loses ground for the second session in a row and extends the negative start of the week, although it manages well to keep business above the 104.00 mark for the time being.

In the meantime, the US cash markets return to the normal activity following Monday’s Juneteenth holiday and show a small improvement in yields in the short end and the belly of the curve.

The dollar is expected to remain vigilant on the ongoing debate over another probable 75 bps rate hike by the Federal Reserve in July, while speculation that the US economy could slip back to recession remains on the rise.

In the docket, the Chicago Fed National Activity Index is due seconded by Existing Home Sales and the speech by Richmond Fed T,Barkin (2024 voter, hawk).

What to look for around USD

The index came under pressure after climbing to new highs around 105.80 in the wake of the Fed’s 75 bps rate hike on June 15.

The dollar, in the meantime, remains well supported by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy, all factors supportive of a stronger dollar in the next months.

Key events in the US this week: Chicago Fed National Activity Index, Existing Home Sales (Tuesday) – MBA Mortgage Applications, Powell’s Semiannual Testimony (Wednesday) – Initial Claims, Flash PMIs, Powell’s Semiannual Testimony (Thursday) – Final Consumer Sentiment (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 losing 0.06% at 104.41 and faces the next support at 102.53 (55-day SMA) followed by 101.29 (monthly low May 30) and then 100.24 (100-day SMA). On the other hand, a break above 105.78 (2022 high June 15) would open the door to 107.31 (monthly high December 2002) and finally 108.74 (monthly high October 2002).