USD Index: Price action remains inconclusive below 104.00 ahead of data

• The index navigates within a narrow range around 103.70.
• US yields remain mixed following the recent shar pullback.
• Producer Prices, Retail Sales take centre stage later on Tuesday.

The greenback, in terms of the USD Index (DXY), advances marginally and hovers around the 103.70/80 band ahead of the opening bell in the euro area.

USD Index now looks at data

The index keeps the inconclusive trade in the lower end of the weekly range south of 104.00 the figure amidst some tepid recovery in yields in the short end of the curve amidst firmer bets of a 25 bps rate hike by the Fed at the March 22 event.

On the latter, CME Group’s FedWatch Tool sees the probability of a 25 bps rate raise at nearly 82%, from around 215 a week ago.

In the meantime, investors remain cautious and continue to closely follow the aftermath of the SVB collapse and its potential effects on the Fed’s decision on interest rates next week.

In the US docket, Producer Prices and Retail Sales will be in the limelight followed by MBA Mortgage Applications, the NY Empire State Manufacturing Index, Business Inventories, the NAHB Housing Market Index and TIC Flows.

What to look for around USD

The index remains under pressure and attempts to put further distance from recent multi-week lows near 103.50 seen earlier in the week.

The latest results from the US jobs report coupled with the ongoing effervescence around the US banking system threat the greenback and collaborate with investors’ view of a 25 bps rate hike at the March gathering, all sponsoring the corrective decline in the USD Index (DXY) from last week’s 2023 highs in the boundaries of the 106.00 region to Monday’s 103.50 zone.

So far, the index remains under pressure against the backdrop of reinvigorated bets of a Fed’s pivot in the short-term horizon. However, the still elevated inflation and the resilience of the US economy continue to play against that view.

Key events in the US this week: MBA Mortgage Applications, Producer Prices, Retail Sales, Business Inventories, NAHB Housing Market Index, TIC Flows (Wednesday) – Initial Jobless Claims, Housing Starts, Building Permits, Philly Fed Manufacturing Index (Thursday) – Industrial Production, Flash Michigan Consumer Sentiment, CB Leading Index (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 advancing 0.05% at 103.73 and faces the next hurdle at 105.88 (2023 high March 8) seconded by 106.63 (200-day SMA) and then 107.19 (weekly high November 30 2022). On the flip side, the breakdown of 103.48 (monthly low March 13) would open the door to 102.58 (weekly low February 14) and finally 100.82 (2023 low February 2).