USD Index extends the recovery to 102.60 ahead of data, Fedspeak

• The index climbs to 3-day peaks near 102.60.
• US markets return to normal activity following Monday’s holiday.
• Housing data, Fedspeak next on tap in the US docket.

The greenback advances further and reaches new 3-day peaks around 102.60 when tracked by the USD Index (DXY) on turnaround Tuesday.

USD Index looks at data, Fed speakers

The index remains optimistic during the first half of the week, maintaining its upward trend for the third consecutive session. This persistent strength is attributed to the ongoing fluctuations in the risk market.

Despite the People's Bank of China (PBoC) reducing the 1-year medium-term lending facility (MLF) by 10 bps during Asian trading hours, the risk-associated market shows little response. Investors, instead, are closely monitoring the Federal Reserve's future actions and eagerly awaiting Chair J. Powell's semiannual testimonies on Wednesday and Thursday.

In terms of US data, the focus will be on Housing Starts and Building Permits, accompanied by speeches from St. Louis Fed member J. Bullard, who holds voting rights in 2025 and leans hawkish, and NY Fed member J. Williams, a permanent voter with centrist tendencies.

What to look for around USD

The greenback maintains alive the rebound from last week’s lows around the 102.00 neighbourhood for yet another session on Tuesday.

Meanwhile, the likelihood of another 25 bps hike at the Fed's upcoming meeting in July remains high, supported by the continued strength of key US fundamentals such as employment and prices.

This view was further bolstered by comments from Fed Chief Powell at the June FOMC event, who referred to the July meeting as "live" and indicated that most of the Committee is prepared to resume the tightening campaign as early as next month.

Key events in the US this week: Building Permits, Housing Starts (Tuesday) – MBA Mortgage Applications. Fed’s Powell Testimony (Wednesday) – Chicago Fed National Activity Index, Initial Jobless Claims, Fed’s Powell Testimony, Existing Home Sales (Thursday) – Advanced 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 late 2023/early 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is gaining 0.12% at 102.60 and the breakout of 103.05 (100-day SMA) would open the door to 104.69 (monthly high May 31) and then 105.21 (200-day SMA). On the downside, the next support emerges at 102.00 (monthly low June 16) followed by 100.78 (2023 low April 14) and finally 100.00 (round level).