USD Index retreats for tops past the 103.00 mark

• The index trims earlier gains north of the 103.00 level.
• US yields regain some upside traction after Friday’s drop.
• US ISM Manufacturing, final PMI next of note in the docket.

The greenback, in terms of the USD Index (DXY), extends the optimism seen last Friday and briefly surpasses the 103.00 barrier on Monday.

USD Index appears bid ahead of data

The index could not sustain the initial bull run past the 103.00 hurdle amidst some recovery in the risk complex, although the risk-off mood appears to prevail so far in the European morning.

In the meantime, the uptick in the dollar looks underpinned by the, for now, mild recovery in US yields following Friday’s retracement, while some speculation pointing to a 25 bps rate hike at the May event also collaborates with the dollar’s upbeat mood at the beginning of the week.

Later in the session, all the attention will be on the release of the always relevant ISM Manufacturing seconded by the final Manufacturing PMI, both prints for the month of March. In addition, February’s Construction Spending and the speech by FOMC L. Cook (permanent voter, centrist) are also due.

What to look for around USD

The index regains the 103.00 region, as the risk-off sentiment seems to extend further into the European session on Monday.

Also weighing on the current bearish outlook for the dollar emerges the increasing likelihood that the Federal Reserve could pause its ongoing tightening stance, which has been propped up by persevering disinflation, nascent weakness in some key fundamentals and fresh concerns surrounding the banking sector

In addition, dwindling hawkishness from Fed rate setters also seems to have removed some strength from the greenback, particularly since the latest FOMC gathering and events around SVB and other medium-size US lenders.

Key events in the US this week: Final Manufacturing PMI, ISM Manufacturing, Construction Spending (Monday) – Factory Orders (Tuesday) – MBA Mortgage Applications, ADP Employment Change, Balance of Trade, Final Services PMI, ISM Non-Manufacturing (Wednesday) – Initial Jobless Claims (Thursday) – Non-Farm Payrolls, Unemployment Rate, Consumer Credit Change (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is advancing 0.12% at 102.71 and faces the next resistance level at 103.37 (55-day SMA) followed by 104.01 (100-day SMA) and then 105.88 (2023 high March 8). On the other hand, the breach of 101.93 (monthly low March 23) would open the door to 100.82 (2023 low February 2) and finally 100.00 (psychological level).