US Dollar Index clings to 105.00 amidst reduced trade conditions

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rivals, alternates gains with losses near the key 105.00 mark at the beginning of the week.

US Dollar Index looks to risk trends, data

The index trades within a tight range at the beginning of the week against the backdrop of marginal trading conditions in response to the inactivity in the US markets due to the Independence Day holiday.

In the meantime, and while a 75 bps rate hike by the Fed at the July meeting looks almost fully priced in, the dollar is expected to follow market chatter around a probable US recession and alternating risk appetite trends.

Later in the week, all the attention will be on the publication of the FOMC Minutes and US labour market, as the ADP report and Initial Claims are due on Thursday ahead of the more relevant Nonfarm Payrolls for the month of June on Friday.

What to look for around USD

Renewed risk-off sentiment motivated the index to reclaim the area around the 105.00 zone in past sessions, all in spite of declining US yields.

The dollar, in the meantime, remains well supported by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy, all factors suggesting a stronger dollar in the next months.

Key events in the US this week: Factory Orders (Tuesday) – MBA Mortgage Applications, Final Services PMI, ISM Non-Manufacturing, FOMC Minutes (Wednesday) – ADP Report, Initial Claims, Balance of Trade (Thursday) – Non-farm Payrolls, Unemployment Rate, Wholesale Inventories, Consumer Credit Change (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is down 0.02% at 105.09 and faces the next support at 103.67 (weekly low June 27) seconded by 103.41 (weekly low June 16) and finally 101.29 (monthly low May 30). On the other hand, a break above 105.54 (weekly high June 30) would expose 105.78 (2022 high June 15) and then 107.31 (monthly high December 2002).