USD Index accelerates losses and revisits 102.50 ahead of key data

• The index loses further momentum and tests 102.50.
• US yields extend the decline in the short end of the curve.
• CB Consumer Confidence, Durable Goods Orders next on tap.

The greenback extends the pessimism seen at the beginning of the week and drops to 2-day lows in the 102.50 when tracked by the USD Index (DXY) on turnaround Tuesday.

USD Index looks at data, risk appetite

The index retreats for the second session in a row on the back of the improved sentiment in the risk-linked galaxy, while the lack of a clear direction in US yields also fail to provide some support for the greenback.

In the meantime, the broad consensus among investors continue to see the Federal Reserve resuming its tightening campaign at the July meeting, while the probability of a 25 bps rate hike nearing 80% measured by CME Group’s FedWatch Tool.

In the US data space, all the attention will be on the release of the Consumer Confidence measured by the Conference Board seconded by Durable Goods Orders, New Home Sales and the FHFA House Price Index.

What to look for around USD

The index remains on the defensive and extends further its rejection from weekly peaks past the 103.00 hurdle seen in past sessions.

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: Durable Goods Orders, FHFA House Price Index, CB Consumer Confidence, New Home Sales (Tuesday) – MBA Mortgage Applications, Advanced Goods Trade Balance, Fed Powell (Wednesday) – Final Q1 Growth Rate, Initial Jobless Claims (Thursday) – PCE, Core PCE, Personal Income/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 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 losing 0.23% at 102.51 and faces the next contention at 101.92 (monthly low June 16) followed by 100.78 (2023 low April 14) and finally 100.00 (round level). On the other hand, the breakout of 103.16 (weekly high June 23) would open the door to 104.69 (monthly high May 31) and then 105.03 (200-day SMA).