USD Index looks flat around 104.50, looks at data, yields

• The index vacillates around the 104.50 region on Monday.
• US yields lack traction following Friday’s marked pullback.
• Factory Orders, short-term bill auctions next on tap.

The greenback, when gauged by the USD Index (DXY), alternates gains with losses in the mid-104.00s at the beginning of the week.

USD Index focuses on data releases, risk trends

The index starts the week in an inconclusive mood around the 104.50 zone, as investors seem to have digested Friday’s marked retracement against the backdrop of the absence of traction in US yields and some tepid improvement in the risk complex.

So far, the dollar appears side-lined above the 104.00 yardstick amidst renewed speculation that the Federal Reserve might not raise rates as high as previously thought despite the persistent hawkish narrative from Fed speakers.

According to CME Group’s FedWatch Tool, the probability of a 25 bps rate hike at the March 22 meeting remains the most likely outcome at 75%.

In the US data space, Factory Orders for the month of January will take centre stage followed by 3-month/6-month Bill Auctions.

What to look for around USD

The index keeps the erratic performance well in place around the 104.50 region so far.

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: Factory Orders (Monday) - Powell’s Semiannual Monetary Policy Report, Wholesale Inventories, Consumer Credit Change (Tuesday) – MBA Mortgage Applications, ADP Employment Change, Balance of Trade, Powell’s Semiannual Monetary Policy Report, Fed’s Beige Book (Wednesday) – Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Monthly Budget Statement (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 0.01% at 104.52 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 106.55 (200-day SMA).