USD Index comes under pressure near 105.20, as risk appetite improves

The greenback, in terms of the USD Index (DXY), adds to Friday’s decline and revisits the low-105.00s ahead of the opening bell in the old continent on Monday.

USD Index: Upside appears capped around 105.40

The index shed ground for the second session in a row following fresh multi-month tops in the 105.40/50 band recorded in the latter part of last week.

The corrective decline in the dollar comes in line with some fresh downside pressure in US yields across different maturities, while investors broadly anticipate interest rates to remain unchanged at the Fed's gathering later in the week.

In the US data space, the NAHB Housing Price Index for the month of September will be in the limelight along with July’s Long-Term TIC Flows.

What to look for around USD

So far, the rally in the greenback seems to have met decent resistance near 105.50, while traders expect the index to enter some sort of consolidative phase pre-FOMC event on September 20.

In the meantime, support for the dollar keeps coming from the good health of the US economy, which at the same time appears underpinned by the tighter-for-longer stance narrative from the Federal Reserve.

Key events in the US this week: NAHB Housing Market Index, Net Long-Term TIC Flows (Monday) – Building Permits, Housing Starts (Tuesday) – MBA Mortgage Applications, Fed interest rate decision, Fed Press Conference (Wednesday) - Initial Jobless Claims, Philly Fed Index, CB Leading Index,  Existing Home Sales (Thursday) – Flash Manufacturing/Services PMIs (Friday).

Eminent issues on the back boiler: Persevering 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 105.18 and the breach of 104.42 (weekly low September 11) would open the door to 103.02 (200-day SMA) and then 102.93 (weekly low August 30). On the other hand, the next up barrier align at 105.43 (monthly high September 14) ahead of 105.88 (2023 high March 8) and finally 106.00 (round level).