USD Index regains some upside traction and approaches 102.00

• The index picks up some pace and trades close to 102.00.
• US yields remain firm in multi-week levels so far on Wednesday.
• Weekly Mortgage Applications next on tap in the docket.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main competitors, manages to reverse Tuesday’s weakness and advances to the proximity of the 102.00 region on Wednesday.

USD Index looks to risk trends

The index extends the range bound theme this week near the 102.00 region on the back of alternating risk appetite trends.

In the meantime, US yields keep navigating the upper end of the curve and remain propped up by firmer conviction of a 25 bps rate hike by the Fed at the May event. On this, CME Group’s FedWatch Tool sees the probability of such a scenario at around 85%.

Data wise in the US calendar, usual MBA Mortgage Applications are due in the first turn seconded by the EIA’s weekly report on US crude oil inventories and the release of the Fed’s Beige Book will close the session.

What to look for around USD

The absence of strong catalysts leaves the price action around the dollar – and the rest of the FX space – somewhat muted so far this week.

In the meantime, the marked retracement in the buck since March has been underpinned by the pick-up in the perception that the Federal Reserve could make a pause in its current tightening cycle just after the May meeting.

In favour of a pivot in the Fed’s normalization process, however, still emerges the persevering disinflation, nascent weakness in some key fundamentals and somewhat persistent concerns surrounding the banking sector.

Key events in the US this week: MBA Mortgage Applications, Fed’s Beige Book (Wednesday) – Initial Claims, Philly Fed Index, CB Leading Index, Existing Home Sales (Thursday) - Flash Manufacturing/Services PMIs (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is gaining 0.27% at 101.99 and faces the immediate resistance at 102.80 (weekly high April 10) followed by 103.05 (monthly high April 3) and then 103.33 (55-day SMA). On the other hand, a breach of 100.78 (2023 low April 14) would open the door to 100.00 (psychological level) and finally 99.81 (weekly low April 21 2022).