US Dollar Index looks choppy in the low-104.00s ahead of data

• DXY gives away part of Thursday’s gains around 104.20.
• US yields attempts a lacklustre rebound early on Friday.
• The final U-Mich Index, New Home Sales are due later.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main competitors, returns to the negative ground in the 104.20 region at the end of the week.

US Dollar Index looks weak on risk appetite, focuses on data

The index extends the choppy performance so far this week and moves in a consolidative theme, with losses somewhat contained by the 104.00 region for the time being.

The better tone in the risk appetite trends weighs on the buck so far in the European morning, while the US cash markets show some respite in the recent downtrend in US yields.

Market participants, in the meantime, seem to have digested both testimonies by Chair Powell before the Senate and the House of Representatives on Wednesday and Thursday, respectively. Powell’s message somehow reiterated the FOMC’s statement of the June meeting, placing the pledge to bring down inflation in the centre of the debate and not ruling out even a 100 bps rate hike in future meetings.

Powell’s colleague at the FOMC, M.Bowman, favoured on Thursday another 75 bps rate hike in July and 50 bps hikes at the subsequent meetings for the remainder of the year.

Speaking about rate hikes, the probability of a 75 bps raise at the July meeting is now at more than 93% according to CME Group’s FedWatch Tool, and around 60% when it comes to a 50 bps hike at the September 21 event.

Later in the NA session, the final Consumer Sentiment gauge is due along with New Home Sales for the month of May.

What to look for around USD

The index seems to have embarked on a consolidation theme with the upper end limited around 105.00 for the time being.

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: Final June Consumer Sentiment, New Home Sales (Friday).

Eminent issues on the back boiler: Hard, soft, softish landing of the US economy. 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 0.14% at 104.25 and faces the next contention at 103.41 (weekly low June 16) seconded by 102.78 (55-day SMA) and finally 101.29 (monthly low May 30). On the other hand, a break above 104.94 (weekly high June 22) would expose 105.78 (2022 high June 15) and then 107.31 (monthly high December 2002).