USD Index remains under pressure and challenges 104.00 ahead of data

• The index adds to Thursday’s decline and puts 104.00 to the test.
• Persistent risk-on mood keeps weighing on the dollar.
• Industrial Production, Consumer Sentiment take centre stage in the docket.

The selling pressure keeps dominating the sentiment around the greenback and forces the USD Index (DXY) to confront the key support at 104.00 at the end of the week.

USD Index looks at data, risk trends

The index retreats for the second session in a row on Friday amidst the persistent recovery in the appetite for the risk complex, which remains propped up at the same time by diminishing concerns around the banking sector in both Europe and the US.

In the meantime, investors continue to favour a 25 bps rate hike by the Federal Reserve at its March gathering. This view remains underpinned by the loss of momentum in some US fundamentals and lower inflation figures in February.

Friday’s releases in the US calendar include the Industrial Production, Manufacturing Production, the CB Leading Index and the advanced Michigan Consumer Sentiment for the month of March.

What to look for around USD

The index comes under pressure and threatens to breach the so far key support around 104.00 at the end of the week.

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: 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 0.36% at 104.07 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).