USD Index extends gains to multi-week tops and approaches 103.00

The greenback, in terms of the USD Index (DXY), adds to Tuesday’s gains and revisits the area of multi-week highs in the 102.80/90 region on Wednesday.

USD Index now looks at 103.00 and above

The index advances for the second session in a row and flirts with the key resistance area of 102.80 on the back of subdued price action in the risk-linked galaxy and the so far lack of direction in the US bonds market.

While the risk aversion continues to dominate the mood among investors, there seems to be a spark of optimism regarding the solution of the debt ceiling issue in the next few days, as emerged from Tuesday’s bipartisan discussions.

From the Fed’s universe, expectations of an impasse of the hiking cycle at the June event appear so far steady despite persistent hawkish narrative from policy makers, particularly when it comes to the stubbornly elevated inflation. On this, Atlanta Fed R. Bostic said late on Tuesday that the Fed is expected to face a big pressure in an scenario of higher unemployment and stick inflation.

Back to the US docket, the housing sector will be in the limelight amidst the release of usual weekly MBA Mortgage Applications, Building Permits and Housing Starts.

What to look for around USD

The index returns to the area of 5-week highs in the 102.75/80 band amidst further weakness in the appetite for the risk complex.

The index seems to be facing downward pressure in light of the recent indication that the Fed will probably pause its normalization process in the near future. That said, the future direction of monetary policy will be determined by the performance of key fundamentals (employment and prices mainly).

Favouring an impasse by the Fed appears the persevering disinflation – despite consumer prices remain well above the target – incipient cracks in the labour market, the loss of momentum in the economy and rising uncertainty surrounding the US banking sector.

Key events in the US this week: MBA Mortgage Applications, Building Permits, Housing Starts (Wednesday) – Philly Fed Index, Initial Jobless Claims, CB Leading Index, Existing Home Sales (Thursday) – Fed J. Powel (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 20223. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is up 0.23% at 102.82 and the break above 103.05 (monthly high April 3) could open the door to 105.80 (200-day SMA) and then 105.88 (2023 high March 8). On the downside, the next support emerges at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level).