USD Index loses the grip and challenges 101.00

• The index accelerates losses and puts 101.00 to the test.
• US yields extend the leg lower across the curve on Wednesday.
• US Durable Goods Orders came in above expectations in March.

The USD Index (DXY), which tracks the Greenback vs. a basket of its main competitors, gathers further selling pressure and challenges the key support at the 101.00 region on Wednesday.

USD Index on the defensive on rising risk-on trade

The index drops to multi-day lows and revisits the 101.00 neighbourhood on the back of the acute bounce in the risk-associated assets, eroding at the same time the strong advance seen in the previous session.

No news from the macro scenario, where the recent resurgence of banking jitters sponsored the return of the risk aversion on Tuesday and propelled the index to the proximity of the 102.00 region.

In the meantime, investors continue to favour a 25 bps rate hike by the Fed at the May 3 event, although the probability of that outcome shrinks a tad to around 75% (from nearly 90% a day ago).

In the US data space, MBA Mortgage Applications rose 3.7% in the week to April 21, while Durable Goods Orders expanded at a monthly 3.2% in March and advanced figures saw the trade deficit shrinking to $84.6B also in March.

What to look for around USD

The U-turn in the index now opens the door to a deeper retracement, including a potential breakdown of the 101.00 level and a subsequent challenge of 2023 lows near 100.80.

Looking at the broader picture, the index continues to navigate in a consolidative phase against steady expectations of another rate increase in May by the Fed.

In favour of a pivot in the Fed’s hiking cycle following the May event appears the persevering disinflation and nascent weakness in some key fundamentals.

Key events in the US this week: MBA Mortgage Applications, Durable Goods Orders, Advanced Goods Trade Balance (Wednesday) – Flash Q1 GDP Growth Rate, Initial Jobless Claims, Pending Home Sales (Thursday) – PCE/Core PCE, Employment Cost, Personal Income, Personal Spending, Final Michigan Consumer Sentiment (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 losing 0.79% at 101.04 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 emerges at 102.80 (weekly high April 10) followed by 103.05 (monthly high April 3) and then 103.21 (55-day SMA).