USD Index climbs to daily highs past 102.00 ahead of flash PMIs

• The index now adds to Monday’s uptick above the 102.00 mark.
• Risk appetite trends remain inconclusive so far on Tuesday.
• Preliminary PMIs, Richmond Fed Index next on tap.

Alternating risk appetite trends keep the price action volatile around the greenback and now motivates the USD Index (DXY) to advance further north of the 102.00 yardstick.

USD Index appears bid pre-PMIs

The index remains side-lined around the 102.00 zone against the backdrop of the equally inconclusive sentiment in the risk complex on turnaround Tuesday.

Indeed, investors’ expectations surrounding the next FOMC event on February 1 also appear unchanged and keep favouring a 25 bps interest rate hike, while speculation around a Fed’s pivot and the likelihood of a soft landing of the economy continue to run high among traders.

Later in the US calendar, all the attention will be on the preliminary prints of the Manufacturing and Services PMIs for the current month seconded by the Richmond Fed Manufacturing Index.

What to look for around USD

The dollar’s price action remains subdued in the lower end of the recent range around the 102.00 region so far this week.

The idea of a probable pivot in the Fed’s policy continues to weigh on the greenback and keeps the price action around the DXY depressed. This view, however, also comes in contrast to the hawkish message from the latest FOMC Minutes and recent comments from rate setters, all pointing to the need to advance to a more restrictive stance and stay there for longer, at the time when rates are seen climbing above the 5.0% mark.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and the continuation of its hiking cycle.

Key events in the US this week: Flash Manufacturing/Services PMIs (Tuesday) – MBA Mortgage Applications (Wednesday) – Durable Goods Orders, Advanced Q4 GDP Growth Rate, Chicago Fed National Activity Index, Initial Jobless Claims, New Home Sales (Thursday) – PCE, Core PCE, Personal Income, Personal Spending, Pending Home Sales, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Prospects for extra rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index gains 0.02% at 102.04 and a breakout of the weekly high at 102.89 (January 18) would pave the way for a test of 105.63 (monthly high January 6) and then 106.45 (200-day SMA). On the flip side, the next support emerges at 101.52 (2023 low January 18) seconded by 101.29 (monthly low May 30 2022) and finally 100.00 (psychological level).