USD Index comes under pressure and challenges 104.00

• The index meets some selling pressure near recent tops.
• US markets will be closed on Monday due to Labor Day holiday.
• Markets continue to digest Friday’s Payrolls (+187K).

The USD Index (DXY), which gauges the greenback vs. its main rival competitors, faces some downside pressure around recent peaks near 104.30.

USD Index looks at Fed, risk trends

The index now comes under some tepid selling pressure following two consecutive daily advances, including a move back above the key 104.00 barrier in the second half of last week.

In the meantime, market participants continue to digest Friday’s Nonfarm Payrolls, where the US economy created more jobs than initially estimated (187K jobs), although the jobless rate ticked higher to 3.8% and wage inflation seems to have cooled somewhat during last month.

Back to the Fed, investors continue to favour unchanged interest rates for the remainder of the year, particularly following the recent results from the jobs report as well as other key US fundamentals.

There will be no activity in the US markets on Monday due to the Labor Day holiday, while Factory Orders, ISM Services PMI and weekly Initial Claims are expected to be in the limelight later in the week.

What to look for around USD

The recent strong recovery in the index seems to have met some initial up barrier around the 104.30 region so far.

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 regained some traction as of late.

Key events in the US this week: Factory Orders (Tuesday) – MBA Mortgage Applications, Balance of Trade, Final S&P Global Services PMI, ISM Services PMI, Fed Beige Book (Wednesday) – Initial Jobless Claims (Thursday) – Wholesale Inventories, Consumer Credit Change (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 H1 2024. Geopolitical effervescence vs. Russia and China.

USD Index relevant levels

Now, the index is losing 0.12% at 104.13 and the breach of 103.04 (200-day SMA) would open the door to 102.93 (weekly low August 30) and then 102.42 (55-day SMA). On the upside, there is an initial hurdle at 104.44 (monthly high August 25) ahead of 104.69 (monthly high May 31) and finally 105.88 (2023 high March 8).