US Dollar Index falls into an air pocket ahead of 104.00

• DXY’s upside runs out of steam near 104.00.
• Appetite for riskier assets appears firmer on Tuesday.
• Initial Claims, Philly Fed Index, housing data next on tap.

The greenback, when tracked by the US Dollar Index (DXY), returns to the negative ground after faltering just ahead of 104.00 the figure on Thursday.

US Dollar Index looks to data, Fed

The dollar’s rebound from weekly lows in the 103.20 region (May 18) appears to have lost some impulse in the area just ahead of the 104.00 neighbourhood on Thursday amidst the apparent resumption of the risk-on sentiment.

The corrective decline in the greenback comes pari passu with the equally negative performance in US yields along the curve so far, adding to the recent weakness.

In the meantime, the index paid no attention to comments by Philly Fed P.Harker (2023 voter, hawk) late on Wednesday, who also advocated for a 50 bps rate hike at both the June and July FOMC events. In addition, he hinted at the likeliness of negative growth and the probability of a “soft landing”.

In the domestic calendar, usual weekly Claims are due seconded by the always-relevant Philly Fed Manufacturing gauge, the CB Leading Index and Existing Home Sales.

What to look for around USD

The dollar’s rebound comes short of the 104.00 mark so far on Thursday. In the meantime, and supporting the buck, appears investors’ expectations of a tighter rate path by the Federal Reserve and its correlation to yields, the current elevated inflation narrative and the solid health of the labour market. On the negatives for the greenback turn up the incipient speculation of a “hard landing” of the US economy as a result of the Fed’s more aggressive normalization.

Key events in the US this week: Initial Claims, Philly Fed Manufacturing Index, Existing Home Sales, CB Leading Index (Thursday).

Eminent issues on the back boiler: Speculation of a “hard landing” of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is down 0.20% at 103.69 and faces the next support at 103.19 (weekly low May 18) followed by 102.35 (low May 5) and then 99.81 (weekly low April 21). On the other hand, the break above 105.00 (2022 high May 13) would open the door to 105.63 (high December 11 2002) and finally 106.00 (round level).