US Dollar Index breathes some air and approaches 102.00 ahead of FOMC

• DXY meets contention near 101.60 so far this week.
• The absence of traction in either direction prevails among US yields.
• Durable Goods Orders, FOMC Minutes grab all the attention midweek.

The greenback, in terms of the US Dollar Index (DXY), regains some composure and looks to retake the 102.00 region on Wednesday.

US Dollar Index now looks to FOMC Minutes

The index posts decent gains early in the European morning following two consecutive daily retracements, although it keeps the bearish note unchanged after being rejected from 19-year tops around 105.00 earlier in the month.

In the meantime, US yields extend the side-lined theme, although with a small and quite relentless decline from tops witnessed earlier in the month.

The sharp sell-off in the US dollar seen in the last couple of weeks came on the back of the strong re-emergence of the appetite for the riskier assets, despite persistent hawkish messages from Fed’s rate-setters, almost all of them pointing to a 50 bps hike of the fed Funds Target Range in the next two FOMC events.

Later in the NA session, MBA Mortgage Applications are due in the first turn seconded by April’s Durable Goods Orders, all ahead of the key publication of the FOMC Minutes of the May gathering.

What to look for around USD

The dollar manages to regain the smile and bounce off 4-week lows in the sub-102.00 region so far this week.

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: MBA Mortgage Applications, Durable Goods Orders, FOMC Minutes (Wednesday) – Flash Q1 GDP, Initial Claims, Pending Home Sales (Thursday) – Core PCE, Personal Income/Spending, Final Consumer Sentiment (Friday).

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 gaining 0.30% at 102.07 and a 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). On the other hand, the next contention emerges at 101.64 (monthly low May 24) followed by 100.96 (55-day SMA) and then 99.81 (weekly low April 21).