USD Index looks bid near 103.50 ahead of US data

• The index flirts with 103.50 amidst the broader consolidative theme.
• Investors keep favouring a 25 bps rate hike by the Fed in March.
• Retail Sales, Industrial Production take centre stage in the NA session.

The greenback, in terms of the USD Index (DXY), sets aside two daily drops in a row and trades with decent gains ahead of the opening bell in the old continent on Wednesday.

USD Index focuses on data

The index manages to regain some balance and leaves behind two consecutive daily drops, although it remains largely within the multi-session consolidative phase so far on Wednesday.

Indeed, following the post-CPI volatile session on Tuesday, the dollar now appears stabilized above the 103.00 mark ahead of upcoming key data in the US calendar.

In fact, despite US inflation was higher than expected, it kept the downtrend well in place in January after rising at an annualized 6.4% and 5.6% when it comes to the Core CPI. However, consumer prices are still elevated and support the Fed’s plan to keep hiking rates for the time being. On this, and according to CME Group’s FedWatch Tool, the probability of a 25 bps rate hike in March is now nearly 90%.

In the NA calendar, the focus of attention will be on the Retail Sales, seconded by MBA Mortgage Applications, Industrial Production, the NAHB Index, Business Inventories, the NY Empire State Index and TIC Flows.

What to look for around USD

The dollar remains within a consolidative phase above the 103.00 level against the backdrop of the persistent range bound mood and ahead of key results in the US calendar.

The probable pivot/impasse in the Fed’s normalization process narrative is expected to remain in the centre of the debate along with the hawkish message from Fed speakers, all after US inflation figures for the month of January showed consumer prices are still elevated.

The loss of traction in wage inflation – as per the latest US jobs report - however, seems to lend some support to the view that the Fed’s tightening cycle have started to impact on the still robust US labour markets somewhat.

Key events in the US this week: MBA Mortgage Applications, Retail Sales, Industrial Production, Business Inventories, NAHB Index, TIC Flows (Wednesday) – Building Permits, Housing Starts, Initial Jobless Claims, Philly Fed Index (Thursday) – CB Leading Index (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Slower pace of interest rate hikes by the Federal Reserve vs. shrinking odds for a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is advancing 0.25% at 103.53 and faces the next up barrier at 103.96 (monthly high February 7) seconded by 105.63 (2023 high January 6) and then 106.45 (200-day SMA). On the other hand, the breach of 100.82 (2023 low February 2) would open the door to 100.00 (psychological level) and finally 99.81 (weekly low April 21 2022).