USD Index eases from recent peaks near 104.40

The greenback gives away part of the recent rally, although it manages well to keep the trade above the 104.00 mark when gauged by the USD Index (DXY) on Monday.

USD Index: Gains capped near 104.40

The index starts the week mildly on the defensive, although still above the 104.00 barrier ahead of the opening bell in Euroland on Monday.

Indeed, the tepid bounce in the risk complex puts the buck under some pressure after market participants continue to digest the recently clinched deal around the US debt ceiling.

On this, and in a significant move forward after months of impasse, House Speaker Kevin McCarthy and President Joe Biden announced on Saturday that they had reached a deal in principle to raise the debt limit days before a possible default. The arrangement would suspend the $31.4 trillion debt limit until January 2025, permitting the public authority to cover its bills. In return, non-defence optional spending would be "roughly flat" at current year levels in 2024, and it would increment by just 1% in 2025.

Once the debt ceiling issue is dealt with, investors are expected to shift their attention to the upcoming FOMC event on June 14, where speculation over another 25 bps rate hike continues to run high.

There will be no data releases across the pond due to the Memorial Day holiday.

What to look for around USD

The index eases some ground after hitting multi-week peaks near 104.40 in the second half of the last week.

In the meantime, rising bets of another 25 bps at the Fed’s next gathering in June appear underpinned by the steady resilience of key US fundamentals (employment and prices mainly) amidst the ongoing rally in US yields and the DXY.

Favouring a pause by the Fed, instead, appears the extra tightening of credit conditions in response to uncertainty surrounding the US banking sector.

Key events in the US this week: FHFA’s House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, Fed’s Beige Book (Wednesday) – ADP Employment Change, Initial Jobless Claims, Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Debt ceiling. Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 2023/early 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is down 0.10% at 104.12 and faces the next support at the 100-day SMA at 102.86 seconded by the 55-day SMA at 102.44 and finally 101.01 (weekly low April 26). On the flip side, the surpass of 104.31 (monthly high May 25) seconded by 105.67 (200-day SMA) and then 105.88 (2023 high March 8).