USD Index regains the smile and advances past 104.00

• The index picks up some upside traction near 104.00.
• US markets return to normal activity following Monday’s holiday.
• Flash PMIs, housing data, short-term bill auctions next on tap.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main competitors, trades with decent gains north of the 104.00 barrier on turnaround Tuesday.

USD Index looks to data, risk trends

The index manages to reverse two consecutive daily pullbacks so far on Tuesday and regains the key 104.00 region on the back of the tepid offered stance in the risk-associated universe and a mild uptick in US yields ahead of the opening bell in Euroland.

In the meantime, market participants are expected to remain on the cautious side in light of the publication of the FOMC Minutes and the release of inflation figures measured by the PCE on Wednesday and Friday, respectively, all against the backdrop of the persistent broad debate between market expectations of the Fed’s next steps and the hawkish narrative from policy makers.

In the US data space, advanced Manufacturing and Services PMIs are due seconded by Existing Home Sales and a 3-month/6-month Bill Auctions.

What to look for around USD

The dollar flirts once again with the key 104.00 zone amidst some tepid weakness in the risk complex as US traders resume the activity on Tuesday.

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 labour market remains tight and the economy maintains its resilience.

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: Flash Manufacturing/Services PMI, Existing Home Sales (Tuesday) – MAB Mortgage Applications, FOMC Minutes (Wednesday) – Advanced Q4 GDP Growth Rate, Initial Jobless Claims, Chicago Fed National Activity Index (Thursday) – PCE, Core PCE, Personal Income/Spending, Final Michigan Consumer Sentiment, New Home Sales (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 gaining 0.15% at 104.03 and faces the next hurdle at 104.66 (monthly high February 27) seconded by 105.63 (2023 high January 6) and then 106.44 (200-day SMA). On the other hand, the breach of 102.58 (weekly low February 14) would open the door to 100.82 (2023 low February 2) wand finally 100.00 (psychological level).