USD Index retreats from recent highs and challenges 102.00

• The index reverses two daily pullbacks and revisits 102.00.
• The risk-on trade seems to prevail early in the European session.
• Housing data, Fed’s Bowman next on tap later on Tuesday.

The greenback trades slightly on the defensive and returns to the 102.00 neighbourhood when tracked by the USD Index (DXY) on turnaround Tuesday.

USD Index looks at data, risk trends

The index reverses two daily advances in a row and retreats from Monday’s peaks around the 102.20 region against the backdrop of the better mood in the risk complex on Tuesday.

Indeed, mixed data releases in the Chinese calendar published earlier in the Asian trading hours appear to have reignited the appetite for the risk complex and puts the buck under some downside pressure.

On another front, bets on another 25 bps rate hike by the Federal Reserve at the May 3 gathering remain firm and are expected to limit occasional bouts of weakness in the dollar in the short term.

Data wise in the US, Housing Starts and Building Permits are due seconded by the speech by FOMC M. Bowman (permanent voter, centrist).

What to look for around USD

The upside momentum in the greenback met an initial resistance around 102.20 so far this week.

In the meantime, the marked retracement in the buck since March has been underpinned by the pick-up in the perception that the Federal Reserve could make a pause in its current tightening cycle just after the May meeting.

In favour of a pivot in the Fed’s normalization process, however, still emerges the persevering disinflation, nascent weakness in some key fundamentals and somewhat persistent concerns surrounding the banking sector.

Key events in the US this week: Building Permits, Housing Starts (Tuesday) – MBA Mortgage Applications, Fed’s Beige Book (Wednesday) – Initial Claims, Philly Fed Index, CB Leading Index, Existing Home Sales (Thursday) - Flash Manufacturing/Services PMIs (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 retreating 0.11% at 101.98 and the breach of 100.78 (2023 low April 14) would open the door to 100.00 (psychological level) and finally 99.81 (weekly low April 21 2022). On the other hand, the next hurdle comes at 102.80 (weekly high April 10) followed by 103.05 (monthly high April 3) and then 103.32 (55-day SMA).