USD Index looks flat below the 104.00 region

• The index struggles for direction just below 104.00.
• There is no clear direction in the global markets so far.
• The FOMC Minutes and PCE readings will take centre stage this week.

The greenback, in terms of the USD Index (DXY), treads water just below the 104.00 zone ahead of the opening bell in the old continent on Monday.

USD Index: Upside capped near 104.70

The index appears somewhat stable in the sub-104.00 region following Friday’s U-turn after climbing to fresh multi-week highs in the 104.65/70 band.

In the meantime, the recent bull run in the dollar was underpinned by better-than-expected results in US fundamentals as well as the persevering hawkish narrative from Fed’s rate setters. So far the probability of a 25 bps rate hike at the Fed’s March 22 meeting is nearly 85% according to CME Group’s FedWatch Tool.

Moving forward, the publication of the FOMC Minutes of the February gathering (Wednesday) and inflation figures tracked by the PCE (Friday) are expected to take centre stage in the US docket this week.

What to look for around USD

The dollar faces some profit taking mood following Friday’s sharp advance (and subsequent drop) to new 6-week peaks near 104.70.

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: Flash Manufacturing/Services PMI, Existing Home Sales (Tuesday) – MAB Mortgage Applications, FOMC Minutes (Wednesday) – Advanced Q4 GDP Growth Rate, Initial Jobless Claims, Chicago Fed National Activity Index (Thursday) – PCE, Core PCE, Personal Income/Spending, Final Michigan Consumer Sentiment, New Home Sales (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Slower pace of interest rate hikes by the Federal Reserve vs. shrinking odds for 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 is gaining 0.02% at 103.89 and faces the next hurdle at 104.66 (monthly high February 27) seconded by 105.63 (2023 high January 6) and then 106.44 (200-day SMA). On the other hand, the breach of 102.58 (weekly low February 14) would open the door to 100.82 (2023 low February 2) wand finally 100.00 (psychological level).