USD Index regains composure near 103.70 ahead of key data

• The index bounces off recent lows and regains 103.70.
• US yields attempt a mild rebound across the curve.
• Flash Q2 GDP Growth Rate, ADP report take centre stage.

The greenback manages to regain the smile and advances to the 103.70 region when tracked by the USD Index (DXY) on Wednesday.

USD Index looks bid ahead of data

The index gathers some traction and so far leaves behind two consecutive sessions of losses amidst some loss of momentum in the appetite for risk-linked assets on Wednesday.

Indeed, Tuesday’s data-driven sell-off in the dollar now appears mitigated and investors seem to be repositioning on the greenback against the backdrop of a tepid bounce in US yields across different timeframes and ahead of key data releases in the US calendar.

On the latter, the usual weekly Mortgage Applications by MBA are due in the first turn ahead of the ADP report for the month of August, another estimate of the GDP Growth Rate for the April-June period, advanced Goods Trade Balance and July Pending Home Sales.

What to look for around USD

The index picks up pace and regains the smile following the renewed pessimism in the first half of the week, which saw the dollar retreat from multi-week tops near 104.50 (August 25) to the vicinity of 103.60 on August 29.

In the meantime, support for the dollar keeps coming from the good health of the US economy, which seems to have reignited the narrative around the tighter-for-longer stance from the Federal Reserve.

Running on the opposite side of the road, the idea that the dollar could face headwinds in response to the data-dependent stance from the Fed against the current backdrop of persistent disinflation and cooling of the labour market appears to have regain some traction as of late.

Key events in the US this week: MBA Mortgage Applications, ADP Employment Change, Flash Q2 Growth Rate, Advanced Goods Trade Balance, Pending Home Sales (Wednesday) – PCE, Core PCE, Personal Income, Personal Spending, Chicago PMI, Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending (Friday).

Eminent issues on the back boiler: Persistent debate over a soft or hard landing for the US economy. Incipient speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China.

USD Index relevant levels

Now, the index is gaining 0.19% at 103.68 and the breakout of 104.44 (monthly high August 25) would open the door to 104.69 (monthly high May 31) and finally 105.88 (2023 high March 8). On the downside, immediate support emerges at 103.07 (200-day SMA) followed by 102.34 (55-day SMA) and then 101.74 (monthly low August 4).