USD Index appears depressed post-Fed, breaches 101.00

• The index drops to 10-month lows near 100.80.
• The dollar remains on the defensive post-FOMC event.
• Initial Claims, Factory Orders next of note in the docket.

The greenback, in terms of the USD Index (DXY), adds to the weekly leg lower and breaks below the 101.00 support to print new 10-month lows on Thursday.

USD Index: A visit to 100.00 appears on the horizon

The index retreats for the third session in a row and maintains the 2-week negative streak well in place on the back of further deterioration of the price action around the dollar, especially following the FOMC event on February 1.

Indeed, the dollar keeps losing ground as market participants continue to assess the recent decision by the Fed to raise rates by 25 bps, the smallest hike since the beginning of the tightening cycle almost a year ago.

Both the Fed’s statement and Powell’s press conference acknowledged that inflation seems to have lost some traction albeit it remains elevated, suggesting that the ongoing increasing rates remain appropriate and opening the door to a new “normal” at 25 bps.

Later in the NA session, usual weekly Claims are due seconded by Factory Orders. Of note, in addition, will be the interest rate decisions by the ECB and the BoE, where a 50 bps rate hike appears already priced in in both events.

What to look for around USD

The dollar retreats further and breaks below the 101.00 support to record new multi-month lows amidst increasing selling pressure in the wake of the FOMC event on Wednesday.

The idea of a probable pivot/impasse in the Fed’s normalization process continues to hover around the greenback and keeps the price action around the DXY subdued for the time being. This view has been reinforced after the Fed hiked rates by 25 bps on February 1, while speculation of the terminal rate now below 5% gathered some traction as well.

Key events in the US this week: Initial Jobless Claims, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Services PMI ISM Non-Manufacturing (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 is retreating 0.19% at 100.97 and 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). On the upside, the immediate hurdle comes at the weekly high at 102.60 (weekly high January 31) seconded by 102.89 (January 18) and then 104.02 (55-day SMA).