USD Index looks slightly bid just above 104.00 ahead of key data

• The sharp sell-off in the index meets some support near 104.00.
• Investors now see the Fed reducing its rates in the summer 2024.
• Producer Prices, Retail Sales take centre stage later in the session.

The greenback attempts to grab some breathing space following Tuesday’s steep CPI-driven pullback to the vicinity of 104.00 when tracked by the USD Index (DXY).

USD Index now focuses on data

The index trades within a tight range in the area of two-month lows just above the 104.00 hurdle as market participants continue to digest Tuesday’s lower-than-expected US CPI.

In line with the dollar’s retracement, US yields trade in multi-week lows across the curve pari passu with investors’ repricing of potential interest rate cuts by the Federal Reserve at some point in June–July 2024.

Moving forward, the index is expected to remain under scrutiny in light of the upcoming release of Producer Prices and Retail Sales, while Mortgage Applications gauged by MBA and Business Inventories will complete the daily docket.

Additionally, FOMC M. Barr (permanent voter, centrist) and Richmond Fed T. Barkin (2024 voter, centrist) are due to speak.

What to look for around USD

The pronounced decline in the index appears to have met some initial contention around the 104.00 region, or eleven-week lows, so far this week.

In the meantime, the dollar appears depressed against the backdrop of rising speculation of probable interest rate cuts in H1 2024, all in response to further disinflationary pressures and the gradual cooling of the labour market.

Bolstering the greenback, however, still emerges the resilience of the US economy as well as a hawkish narrative from some Fed rate setters.

Key events in the US this week: MBA Mortgage Applications, Producer Prices, Retail Sales, Business Inventories (Wednesday) - Initial Jobless Claims, Philly Fed Index, Industrial Production, NAHB Index, TC Flows (Thursday) – Building Permits, Housing Starts (Friday).

Eminent issues on the back boiler: Persistent debate over a soft or hard landing for the US economy. Speculation of rate cuts in early 2024. Geopolitical effervescence vs. Russia and China. Potential spread of the Middle East crisis to other regions.

USD Index relevant levels

Now, the index is up 0.03% at 104.10 and the breakout of 106.00 (weekly high November 10) could pave the way to a move to 106.88 (weekly high October 26) and finally 107.34 (2023 high October 3). On the flip side, there is an initial support at 103.98 (monthly low November 14) ahead of 103.60 (200-day SMA) and 102.93 (weekly low August 30).