USD Index remains choppy below 105.00 ahead of data

• The index gives away part of Thursday’s gains and returns to 104.70.
• The rally in US yields take a breather so far on Friday.
• ISM Non-Manufacturing, Services PMI, Fedspeak next on tap in the docket.

The USD Index (DXY), which tracks the greenback vs. a basket of its main rivals, comes under some selling pressure and returns to the sub-105.00 area on Friday.

USD Index now looks at data

The index maintains the weekly choppiness well in place at the end of the week, this time below the 105.00 region and amidst some impasse in the ongoing rally in US yields.

Indeed, the dollar appears offered after investors seem to have already digested the recent bout of hawkishness from some Fed speakers while keep favouring a 25 bps rate hike at the March 22 meeting.

On the latter, the probability of a 50 bps rate raise stays around 30% (from 0% a month ago) according to CME Group’s FedWatch Tool.

In the US data space, the main focus will be on the ISM Non-Manufacturing seconded by the final S&P Global Services PMI along with a slew of Fed speakers: Dallas Fed L.Logan (voter, centrist), Atlanta Fed R.Bostic (2024 voter, hawk), FOMC M.Bowman (permanent voter, centrist) and Richmond Fed T.Barkin (2024 voter, centrist).

What to look for around USD

The index keeps the erratic performance well in place around the 105.00 region so far this week.

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: Final Services PMI, ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Persistent narrative for a Fed’s tighter-for-longer stance. Terminal rates near 5.5%? Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is losing 0.20% at 104.75 and the breakdown of 104.09 (weekly low March 1) would open the door to 103.45 (55-day SMA) and finally 102.58 (weekly low February 14). On the flip side, the next resistance emerges at 105.35 (monthly high February 27) seconded by 105.63 (2023 high January 6) and then 106.54 (200-day SMA).