USD Index clings to daily gains near 102.00 post-US data

• The index trades with decent gains although still below 102.00.
• Flash US Q4 GDP surpassed expectations at 2.9% QoQ.
• New Home Sales expanded 2.3% MoM in December.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main competitors, picks up extra pace following firm prints from the US docket on Thursday.

USD Index now retargets the 102.00 barrier

The index manages well to keep the earlier bounce from the 101.50 region alive, as better-than-expected results from key data releases lent further support to the buck.

In fact, according to preliminary readings, the US economy is seen expanding at an annualized 2.9% in Q4, while Durable Goods Orders increased at a monthly 5.6%, both prints coming in above previous estimates.

Additional results saw Initial Claims rise 186K in the week to January 21, the trade deficit widen to $90.3B and New Home Sales expand 2.3%, or 0.616M units, in December.

What to look for around USD

The index reverses part of the ongoing leg lower and extends the bounce off multi-month lows near 101.50 to the proximity of the 102.00 barrier on Thursday.

The idea of a probable pivot in the Fed’s policy continues to weigh on the greenback and keeps the price action around the DXY subdued. This view, however, also comes in contrast to the hawkish message from the latest FOMC Minutes and recent comments from rate setters, all pointing to the need to advance to a more restrictive stance and stay there for longer, at the time when rates are seen climbing above the 5.0% mark.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and the continuation of its hiking cycle.

Key events in the US this week: Durable Goods Orders, Advanced Q4 GDP Growth Rate, Chicago Fed National Activity Index, Initial Jobless Claims, New Home Sales (Thursday) – PCE, Core PCE, Personal Income, Personal Spending, Pending Home Sales, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Prospects for extra rate hikes by the Federal Reserve vs. speculation of 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 advances 0.30% at 101.94 and the breakout of the weekly high at 102.89 (January 18) would pave the way for a test of 105.63 (monthly high January 6) and then 106.46 (200-day SMA). On the downside, the next support appears at 101.50 (2023 low January 26) seconded by 101.29 (monthly low May 30 2022) and finally 100.00 (psychological level).