USD Index faces some selling pressure and challenges 104.00

• The index slips back to the 104.00 region on Monday.
• The dollar comes under pressure as investors digest Powell’s speech.
• The Dallas Fed manufacturing gauge is due in the US docket.

The greenback, when tracked by the USD Index (DXY), comes under some downside pressure and disputes the 104.00 yardstick in the wake of the opening bell in Euroland on Monday.

USD Index looks at data, risk trends

The index kicks off the week on the back foot and recedes to the 104.00 region, as market participants continue to digest Chief Powell’s speech at the Jackson Hole event on Friday.

On the latter, despite Powell kept the message seen at the latest FOMC gathering (July 26) almost unchanged, it is worth noting that he maintained a great deal of policy optionality and reiterated that the Fed intends to keep the restrictive stance until inflation shows a sustainable loss of traction and approaches the target.

Data-wise, the regional manufacturing gauge from the Dallas Fed is only due along with short-term bill auctions.

What to look for around USD

Renewed weakness now prompts the index to challenge the key support at 104.00 the figure amidst some recovery in the risk complex.

In the meantime, support for the dollar keeps coming from the good health of the US economy, which seems to have reignited the narrative around the tighter-for-longer stance from the Federal Reserve.

Furthermore, the idea that the dollar could face headwinds in response to the data-dependent stance from the Fed against the current backdrop of persistent disinflation and cooling of the labour market appears to be losing traction as of late.

Key events in the US this week: FHFA House Price Index, JOLTs Job Openings, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, ADP Employment Change, Flash Q2 Growth Rate, Advanced Goods Trade Balance, Pending Home Sales (Wednesday) – PCE, Core PCE, Personal Income, Personal Spending, Chicago PMI, Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending (Friday).

Eminent issues on the back boiler: Persistent debate over a soft or hard landing for the US economy. Incipient speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China.

USD Index relevant levels

Now, the index is down 0.13% at 104.05 and faces immediate support at 103.10 (200-day SMA) followed by 102.32 (55-day SMA) and then 101.74 (monthly low August 4). On the upside, the breakout of 104.44 (monthly high August 25) would open the door to 104.69 (monthly high May 31) and finally 105.88 (2023 high March 8).