USD Index retreats from 5-week tops near 102.80

• The index gives away gains following new highs near 102.80.
• US yields start the trading week on a positive foot.
• NY Empire State Index, TIC Flows, Fedspeak next on tap.

The USD Index (DXY), which gauges the greenback vs. a basket of its main competitors, trades slightly on the defensive after hitting new 5-week highs around 102.75 on Monday.

USD Index looks at risk trends, Fedspeak

After two consecutive daily upticks, including new multi-week highs near 102.80 recorded during early trade, the index now gives away some gains ahead of the opening bell in Euroland on Monday.

A tepid recovery in the risk complex, in the meantime, appears to put the dollar under some mild pressure at the beginning of the week despite US yields look poised to extend Friday’s bounce.

Meanwhile the probability of a pause at the Fed’s hiking cycle at the June 14 meeting looks the most likely scenario with nearly 85% according to CME Group’s FedWatch Tool.

In the US data space, the NY Empire State manufacturing gauge and TIC Flows will be in the limelight along with speeches by Atlanta Fed R. Bostic (2024 voter, hawk), Minneapolis Fed N. Kashkari (voter, centrist), Richmond Fed T. Barkin (2024 voter, centrist) and FOMC’s L. Cook (permanent voter, hawk).

What to look for around USD

The index keeps the trade in the area of multi-week peaks near the 103.00 barrier at the beginning of a new trading week.

The index seems to be facing downward pressure in light of the recent indication that the Fed will probably pause its normalization process in the near future. That said, the future direction of monetary policy will be determined by the performance of key fundamentals (employment and prices mainly).

Favouring an impasse by the Fed appears the persevering disinflation – despite consumer prices remain well above the target – incipient cracks in the labour market, the loss of momentum in the economy and rising uncertainty surrounding the US banking sector.

Key events in the US this week: NY Empire State Index, TIC Flows (Monday) – Retail Sales, Business Inventories, NAHB Housing Market Index (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts (Wednesday) – Philly Fed Index, Initial Jobless Claims, CB Leading Index, Existing Home Sales (Thursday) – Fed J. Powel (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 late 20223. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is down 0.09% at 102.60 and faces the next support at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level). On the other hand, the break above 102.75 (monthly high May 15) would open the door to 102.80 (weekly high April 10) and then 103.05 (monthly high April 3).