USD Index comes under pressure near 104.70, looks at data

The greenback appears somewhat offered around the 104.70 region when tracked by the USD Index (DXY) on Wednesday.

USD Index focused on data, Fedspeak

Following Tuesday’s climb to new six-month highs around 104.90, the index now faces some selling bias and gives away part of its recent gains despite the resumption of the upside momentum in US yields across different maturities.

In the meantime, the persistent march north in the greenback has been bolstered by the equally intense weakness in the risk complex as well as the breakout of the critical 200-day SMA (103.02), all against the backdrop of rising speculation that the Fed might start cutting rates around Q2 2024.

Data-wise, in the US, MBA Mortgage Applications are due in the first turn, seconded by Balance of Trade figures, while the services sector will take centre stage with the release of the final prints of the S&P Global Services PMI and the ISM Services PMI. Finally, the Fed’s Beige Book should shed details on the regional performance in the past few weeks.

Additionally, Boston Fed Susan Collins (2025 voter, centrist) and Dallas Fed Lorie Logan (voter, hawk) are due to speak.

What to look for around USD

The recent strong recovery in the index has opened the door to a potential visit to the 105.00 region sooner rather than later.

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.

Running on the opposite side of the road, 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 have regained some traction as of late.

Key events in the US this week: MBA Mortgage Applications, Balance of Trade, Final S&P Global Services PMI, ISM Services PMI, Fed Beige Book (Wednesday) – Initial Jobless Claims (Thursday) – Wholesale Inventories, Consumer Credit Change (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 H1 2024. Geopolitical effervescence vs. Russia and China.

USD Index relevant levels

Now, the index is retreating 0.07% at 104.72 and the breach of 103.02 (200-day SMA) would open the door to 102.93 (weekly low August 30) and then 102.51 (55-day SMA). On the other hand, the next up barrier emerges at 104.90 (monthly high September 5) ahead of 105.00 (round level) and finally 105.88 (2023 high March 8).