USD Index retreats from weekly highs, back to the 104.50 zone

• The index leaves behind Wednesday’s tops above 105.00.
• Alleviated risk aversion removes some strength from the dollar.
• Weekly Claims, Philly Fed index, housing data next on tap.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main competitors, gives away part of the recent advance and returns to the mid-104.00s on Thursday.

USD Index looks to data, ECB meeting

The index trades on the defensive and retreats below the 105.00 mark after two consecutive daily gains amidst mitigated risk aversion and a small recovery in US yields across the curve.

In the meantime, investors’ concerns around the banking system looks somewhat alleviated after Credit Suisse announced it will borrow CHF 50B from the Swiss National Bank (SNB), although the cautious stance still prevails ahead of the key interest rate decision by the European Central Bank (ECB) due later in the afternoon in the old continent.

In the US data space, usual weekly Initial Claims are due seconded by the Philly Fed Manufacturing Index, Building Permits and Housing Starts.

What to look for around USD

The index comes under pressure after hitting fresh tops past the 105.00 mark on Wednesday.

The risk aversion derived from banking jitters appears somewhat diminished and supports some selling pressure in the dollar amidst firmer conviction among investors of a 25 bps rate hike by the Federal Reserve at the March 22 meeting.

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: 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 retreating 0.24% at 104.48 and 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). On the other hand, the next hurdle emerges at 105.88 (2023 high March 8) seconded by 106.64 (200-day SMA) and then 107.19 (weekly high November 30 2022).