USD Index: Price action appears vacillating in the low-102.00s

• The index navigates within a narrow range on Tuesday.
• US yields made a U-turn and now extend the weekly rebound.
• US Retail Sales disappointed expectations in April.

The USD Index (DXY), which measures the greenback vs. a basket of its main competitors, keeps the irresolute price action around the 102.40/30 zone on Tuesday.

USD Index keeps looking at data, yields

The index remains under pressure amidst a tepid bias towards the appetite for the riskier assets, although the still unresolved debt ceiling issue is expected to put a floor on occasional bouts of weakness in the buck.

The ongoing price action in DXY comes along the reversal in US yields across the curve, which rapidly changed course in the wake of lower-than-expected US Retail Sales for the month of April.

In the US docket, Industrial Production expanded 0.5% MoM in April and 0.2% vs. the same month of 2022. In addition, Manufacturing Production rose 1.0% MoM and contracted 0.9% YoY.

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 0.03% at 102.39 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).