USD Index takes a breather and drops below 105.00

• The rally in the dollar enters and impasse around 105.00.
• US yields look poised to extend the decline.
• Wholesale Inventories, Consumer Credit Change next on tap.

Following recent multi-week tops past the 105.00 barrier, the greenback now gives away part of those gains when tracked by the USD Index (DXY) at the end of the week.

USD Index meets resistance around 105.15

The index comes under pressure and slips back below the 105.00 mark on Friday following three consecutive daily advances, although the strong upside in place since mid-July appears unchanged for the time being.

The so far knee-jerk in the dollar comes along with further weakness in US yields across different timeframes and amidst now dwindling bets over a potential rate hike by the Federal Reserve at the November 1 meeting. On this, CME Group now sees the probability of this scenario at around 40%.

In the US docket, Wholesale Inventories and Consumer Credit Change will be in the limelight later in the NA session.

What to look for around USD

The index seems to have met an initial hurdle around six-month peaks north of 105.00 the figure so far this week.

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: 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 retreating 0.15% at 104.89 and the breach of 103.03 (200-day SMA) would open the door to 102.93 (weekly low August 30) and then 102.60 (55-day SMA). On the flip side, the next up barrier comes at 105.15 (monthly high September 7) ahead of 105.88 (2023 high March 8) and finally 106.00 (round level).