USD Index looks for direction around 103.30, focus remains on debt ceiling talks

• The index alternates gains with losses around 103.30.
• No deal emerges from the Biden-McCarthy debt discussions.
• Housing data, flash PMIs next of note in the US calendar.

The greenback trades without a clear direction around the 103.30 region when gauged by the USD Index (DXY) on Tuesday.

USD Index looks at debt ceiling, data

The index looks to extend the auspicious start of the week and maintains the trade above the key barrier at 103.00 the figure amidst steady cautiousness in light of the relentless negotiations to clinch a deal around the US debt ceiling.

On the latter, an agreement was still elusive following the meeting between President Biden and House Speaker McCarthy on Monday despite news cited the productive tone surrounding the negotiations and the promise of further talks to avoid a default that could come as soon as early June according to Treasury Secretary Janet Yellen.

In the US data space, flash Manufacturing and Services PMIs are due along with New Home Sales and the speech by Dallas Fed L. Logan (voter, hawk).

What to look for around USD

The index advances gradually past the 103.00 mark against a prudent backdrop dominated by the debt ceiling negotiations.

In the meantime, monthly highs in the 103.60/65 band emerge as immediate targets for bulls amidst diminishing signals that the Fed will probably pause its normalization process in the near future, all in response to the steady resilience of key US fundamentals (employment and prices mainly).

Favouring a pause by the Fed, instead, appears the extra tightening of credit conditions in response to uncertainty surrounding the US banking sector.

Key events in the US this week: Flash Manufacturing/Services PMI, New Home Sales (Tuesday) – MBA Mortgage Applications, FOMC Minutes (Wednesday) – Initial Jobless Claims, Chicago Fed National Activity Index, Pending Home Sales, Advanced Q1 GDP Growth Rate (Thursday) – PCE/Core PCE, Durable Goods Orders, Flash Goods Trade Balance, Personal Income/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 late 2023/early 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is up 0.10% at 103.33 and the break above 103.62 (monthly high May 18) could open the door to 105.74 (200-day SMA) and then 105.88 (2023 high March 8). On the other hand, the next support emerges at the 55-day SMA at 102.49 seconded by 101.01 (weekly low April 26) and finally 100.78 (2023 low April 14).