USD Index comes under pressure around 111.00 ahead of ISM, Fed

• The index gives away part of the recent gains and drops below 111.00.
• The Fed starts its 2-day meeting later on Tuesday.
• ISM Manufacturing, Final Manufacturing PMI next of note in the docket.

The greenback, when measured by the USD Index (DXY), runs into some tough resistance near 111.60 on turnaround Tuesday.

USD Index looks to data

The index returns to the negative territory and leaves behind the 3-session positive streak on Tuesday on the back of some recovery in the risk-associated universe and diminishing US yields.

On the latter, yields lose momentum across the curve and fade part of the auspicious start of the week, as the Fed’s 2-day gathering kicks in later in the NA session.

It is worth recalling that the Federal Reserve is widely expected to hike the Fed Funds Target Range (FFTR) by 75 bps to 3.75%-4.00% on Wednesday.

In the US data space, the ISM Manufacturing will take centre stage seconded by the final prints of the S&P Global Manufacturing PMI and Construction Spending figures.

What to look for around USD

The dollar’s rally meets an initial hurdle around 111.60 in the first half of the week so far.

In the meantime, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Final Manufacturing PMI, Construction Spending, ISM Manufacturing (Tuesday) – MBA Mortgage Applications, ADP Employment Change, FOMC Interest Rate Decision, Chief Powell press conference (Wednesday) – Balance of Trade, Initial Jobless Claims, Final Services PMI, ISM Non-Manufacturing (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 0.46% at 111.06 and the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the upside, the next hurdle comes at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).