USD Index keeps the bid bias unchanged near 103.00

• The index pierces 103.00 and prints new multi-week tops.
• Markets’ attention remains on the debt ceiling issue.
• US housing data came in mixed in April.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main rival currencies, keeps the buying pressure well and sound near the 103.00 region on Wednesday.

USD Index looks at debt ceiling discussions

DXY pushes higher and revisits the area just above the 103.00 barrier for the first time since early April on the back of the persistent risk aversion, while the recovery in US yields across the curve also lend wings to the dollar.

According to the bipartisan discussions that took place on Tuesday, there appears to be a glimmer of optimism regarding the resolution of the debt ceiling issue in the upcoming days despite the fact that investors' feelings of risk aversion continue to dominate.

Despite the persistent hawkish narrative from policymakers, particularly when it comes to the inflation that has remained stubbornly elevated, expectations of an impasse in the hiking cycle at the June event appear to be steady from the Fed's perspective. In this regard, R. Bostic of the Atlanta Fed stated late on Tuesday that the Fed is anticipated to face significant pressure in the event of higher unemployment and persistent inflation.

In the US calendar, Mortgage Applications decreased by 5.7% in the week ending May 12, while Housing Starts increased by 2.2% MoM (1.401 million units) and Building Permits dropped 1.5% MoM (1.416 million units) in April's housing sector data.

What to look for around USD

The index returns to the area of multi-week highs in the 103.00 zone amidst the marked resurgence of the risk-off mood among market participants.

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: 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 up 0.39% at 103.01 and the break above 103.05 (monthly high April 3) could open the door to 105.80 (200-day SMA) and then 105.88 (2023 high March 8). On the downside, the next support emerges at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level).