USD Index treads water around 101.60, looks at data

• The index navigates with humble gains around 101.60.
• US yields remain depressed in multi-day lows.
• ADP report, ISM Non-Manufacturing take centre stage later.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main rivals, trades with marginal gains and looks to consolidate the recent pullback on Wednesday.

USD Index focuses on data

After two consecutive daily pullbacks, the index now hovers around the 101.60 region on the back of the generalized flattish mood in the global markets.

The dollar, in the meantime, appears under heavy pressure and trades in the area of multi-week lows well south of the 102.00 mark amidst the broad-based improvement in the risk-associated universe and expectations of a pause by the Fed at the May event.

On the latter, consensus among traders remains pretty divided and CME Group’s FedWatch Tool now sees the probability that the Fed could leave rates unchanged at 55% at the May 3 gathering.

In the NA session, MBA Mortgage Applications are due in the first turn seconded by Balance of Trade, the final Services PMI and the ISM Non-Manufacturing.

What to look for around USD

Price action around the index remains depressed in the sub-102.00 region against the backdrop of rising prudence among market participants ahead of the release of US Nonfarm Payrolls in the second half of the week.

Also weighing on the current bearish outlook for the dollar emerges the almost omnipresent view that the Federal Reserve could pause its ongoing tightening stance in May, 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: 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 0.02% at 102.60 and faces the next resistance level at 103.33 (55-day SMA) followed by 103.91 (100-day SMA) and then 105.88 (2023 high March 8). On the other hand, the breach of 101.43 (monthly low April 5) would open the door to 100.82 (2023 low February 2) and finally 100.00 (psychological level).