USD Index starts the week with decent gains near 102.00

• The index regains the smile and looks to retest 102.00 on Monday.
• US yields trade slightly on the defensive and reverse Friday’s gains.
• The Chicago Fed National Activity Index will take centre stage today.

The greenback, when tracked by the USD Index (DXY), gathers some upside impulse and approaches the key 102.00 region on Monday.

USD Index focuses on risk trends

The index maintains the side-lined trade well in place for yet another session on Monday, this time amidst so far declining US yields and a mild knee-jerk in the risk complex.

In the meantime, investors continue to anticipate a 25 bps rate hike at the Fed’s meeting on May 3, while the likelihood of a pause in the tightening cycle following this meeting seems to be gaining momentum as well.

Later in the NA session, the Chicago Fed National Activity Index will be in the limelight seconded by the Dallas Fed Manufacturing Index.

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 near the 102.00 region so far at the beginning of the week.

In the meantime, the index seems to have moved into a consolidative phase against steady expectations of another rate increase in May by the Fed, while alternating risk appetite trends also collaborate with the vacillating price action in the buck.

In favour of a pivot in the Fed’s hiking cycle following the May event appears the persevering disinflation and nascent weakness in some key fundamentals.

Key events in the US this week: Chicago Fed National Activity Index (Monday) – House Price Index, CB Consumer Confidence, New Home Sales (Tuesday) – MBA Mortgage Applications, Durable Goods Orders, Advanced Goods Trade Balance (Wednesday) – Flash Q1 GDP Growth Rate, Initial Jobless Claims, Pending Home Sales (Thursday) – PCE/Core PCE, Employment Cost, Personal Income, Personal Spending, Final Michigan Consumer Sentiment (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 0.17% at 101.89 and faces the next hurdle at 102.80 (weekly high April 10) followed by 103.05 (monthly high April 3) and then 103.27 (55-day SMA). On the flip side, the 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).