USD Index struggles for direction around 102.40 ahead of data

• The index trades in an inconclusive fashion near 102.40.
• US yields show no clear direction so far on Tuesday.
• US Retail Sales, NAHB Index, Fedspeak next on tap.

The greenback, in terms of the USD Index (DXY), navigates a tight range around the 102.40 zone on turnaround Tuesday.

USD Index focuses on data, risk trends

The index alternates gains with losses in the 102.40 region following Monday’s marked retracement from multi-week highs near 102.80.

In the meantime, US yields appear tilted to the downside in the wake of the opening bell in the Euroland and against the backdrop of steady bets for a Fed’s pause of its hiking cycle at the June 14 meeting.

On the latter, and amidst the data-dependent stance from the Fed, investors are expected to closely follow the release of April’s Retail Sales later in the NA session seconded by Industrial Production figures, the NAHB Housing Market Index as well as Business Inventories.

In addition, Cleveland Fed L. Mester (2024 voter, hawk), Atlanta Fed R. Bostic (2024 voter, hawk), NY Fed J. Williams (permanent voter, centrist), Dallas Fed L. Logan (voter, centrist) and FOMC’s M. Barr (permanent voter, centrist) are all due to speak later on Tuesday.

What to look for around USD

The index abandons the area of 5-week highs in the 102.75/80 band amidst some inconclusive risk appetite trends and ahead of the release of key results in the docket.

The index seems to be facing downward pressure in light of the recent indication that the Fed will probably pause its normalization process in the near future. That said, the future direction of monetary policy will be determined by the performance of key fundamentals (employment and prices mainly).

Favouring an impasse by the Fed appears the persevering disinflation – despite consumer prices remain well above the target – incipient cracks in the labour market, the loss of momentum in the economy and rising uncertainty surrounding the US banking sector.

Key events in the US this week: NY Empire State Index, TIC Flows (Monday) – Retail Sales, Business Inventories, Industrial Production, NAHB Housing Market Index (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts (Wednesday) – Philly Fed Index, Initial Jobless Claims, CB Leading Index, Existing Home Sales (Thursday) – Fed J. Powel (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 late 20223. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is down 0.06% at 102.35 and faces the next support at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level). On the other hand, the break above 102.75 (monthly high May 15) would open the door to 102.80 (weekly high April 10) and then 103.05 (monthly high April 3).