USD Index struggles for direction above 104.00 ahead of FOMC Minutes

• The index maintains the consolidative fashion just beyond 104.00.
• US yields retreats from recent multi-week highs prior to Minutes.
• Weekly Mortgage Applications, FOMC Minutes next on tap in the docket.

The greenback, when tracked by the USD Index (DXY), keeps the range bound theme well in place for yet another session, this time just above the 104.00 barrier on Wednesday.

USD Index focuses on the FOMC Minutes

The index exchanges gains with losses in the low-104.00s midweek against the backdrop of a lacklustre rebound in the risk complex and some prudence ahead of the publication of the FOMC Minutes later in the NA session.

The macro scenario remains pretty much unchanged and gyrates around the (likely) continuation of the normalization process by the Federal Reserve, while speculation of a terminal rate beyond the 5% level continues to gather traction.

Later in the US data space, Mortgage Applications gauged by MBA will be the sole release prior to the FOMC Minutes of the February 2 gathering.

What to look for around USD

The dollar appears somewhat stable around the key 104.00 region as the cautious trade seems to prevail ahead of the FOMC Minutes.

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: 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 retreating 0.07% at 104.09 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).