US Dollar Index looks offered around 103.60, focus on Fedspeak

The greenback, in terms of the US Dollar Index (DXY), meets some selling pressure around the 103.60 region on turnaround Tuesday.

US Dollar Index looks to Fed-speakers

The index suffers some selling pressure after three consecutive daily advances, including new 19-year highs near 104.20 recorded at the beginning of the week.

The renewed weakness in the buck comes amidst the tepid rebound in US yields along the curve, as the downtrend in the bonds market seems to have resumed.

In the meantime, investors continue to adjust their expectations following last week’s FOMC event and the release of the April’s Nonfarm Payrolls. It is worth recalling that the Fed left the door open to extra 50 bps rate hikes in the upcoming meetings, while a 75 bps raise seems to be out of favour for the time being.

On this, the probability of a 50 bps rate hike at the June 15 meeting surpasses the 90% according to CME Group’s FedWatch Tool.

Later in the NA session, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index are due seconded by speeches by NY Fed J.Williams (permanent voter, centrist), Atlanta Fed R.Bostic (2024 voter, centrist), Minneapolis Fed N.Kashkari (2023 voter, dove) , FOMC C.Waller (permanent voter, hawk) and Cleveland Fed L.Mester (voter, hawk).

What to look for around USD

The dollar regained its solid appeal and managed to record new highs beyond the 104.00 mark on Monday, as investors’ expectations for a tighter rate path by the Federal Reserve have been nothing but reinforced by the FOMC event last week. The constructive stance in the dollar is also underpinned by the current elevated inflation narrative and the solid health of the labour market as well as bouts of geopolitical tensions and higher US yields.

Key events in the US this week: MBA Mortgage Applications, Inflation/Core Inflation Rate (Wednesday) – Producer Prices, Initial Claims (Thursday) – Flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is losing 0.07% at 103.6 and faces the next support at 102.35 (low May 5) seconded by 99.81 (weekly low April 21) and then 99.57 (weekly low April 14). On the other hand, the breakout of 104.18 (2022 high May 9) would open the door to 105.00 (round level) and finally 105.63 (high December 11 2002).