USD Index gives away some gains around 103.40

• The index appears somewhat offered around 103.40.
• Cautiousness is expected to increase ahead of CPI, Fed.
• The Monthly Budget Statement will be the sole release on Monday.

The greenback, when measured by the USD Index (DXY), starts the week slightly on the defensive and around the 103.40 region.

USD Index focuses on key data, FOMC

The index navigates the lower end of the recent range near the 103.50 area amidst some tepid bounce at the beginning of the week.

The daily pullback in spot so far contrasts with the small uptick in US yields across the curve, while expectations of a Fed pause at the June 14 meeting appear firmer and a 25 bps rate hike in July looks favoured for the time being.

In the US data space, the only release of note will be the May’s Monthly Budget Statement, due later at the end of the NA session.

What to look for around USD

The index seems to have met some initial contention around the 103.30 region so far this month.

In the meantime, bets of another 25 bps at the Fed’s next gathering in June reversed course in spite of the steady resilience of key US fundamentals (employment and prices, mainly) and have dented the recent rally in the dollar.

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

Key events in the US this week: Monthly Budget Statement (Monday) – Inflation Rate (Tuesday) – MBA Mortgage Applications, Producer Prices, FOMC Interest Rate Decision, Powell press conference (Wednesday) – Initial Jobless Claims, Philly Fed Manufacturing Index, Retail Sales, NY Empire State Index, Industrial Production, Business Inventories, TIC Flows (Thursday) – Flash 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 losing 0.8% at 103.36 and faces the next support at at 103.29 (monthly low June 8) seconded by 103.00 (100-day SMA) and finally 102.51 (55-day SMA). On the flip side, the breakout of 104.69 (monthly high May 31) would open the door to 105.41 (200-day SMA) and then 105.88 (2023 high March 8).