USD Index regains upside traction and targets 105.00 ahead of data

• The index reclaims ground lost following Monday’s decline.
• US yields maintain the February rally well in place.
• Consumer Confidence, housing data, trade balance next on tap.

The greenback, in terms of the USD Index (DXY), leaves behind part of Monday’s retracement and revisits the 104.80 region on Tuesday.

USD Index looks at data

The index regains the smile and refocuses on the 105.00 neighbourhood amidst some decent recovery and ahead of the opening bell in the old continent on turnaround Tuesday.

The dollar’s negative start of the week came in response to some profit taking among investors following last week’s sharp advance in the index, while the continuation of the march north in US yields continue to support the current strong momentum in the buck.

In the US data space, advanced Goods Trade Balance is due seconded by the FHFA’s House Price Index, the Chicago PMI, Consumer Confidence tracked by the Conference Board and the Richmond Fed Manufacturing Index.

What to look for around USD

The index appears bid near the 105.00 barrier amidst the resumption of the buying interest in the dollar in the first half of the week.

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: Advanced Goods Trade Balance, FHFA House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Approvals, Final Manufacturing PMI, ISM Manufacturing, Construction Spending (Wednesday) – Initial Jobless Claims (Thursday) – Final Services PMI, ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Persistent narrative for a Fed’s tighter-for-longer stance. Terminal rates near 5.5%? Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is gaining 0.20% at 104.85 and faces the next hurdle at 105.35 (monthly high February 27) seconded by 105.63 (2023 high January 6) and then 106.49 (200-day SMA). On the other hand, the breach of 103.43 (55-day SMA) would open the door to 102.58 (weekly low February 14) and finally 100.82 (2023 low February 2).