USD Index extends the decline and approaches 103.00

The USD Index (DXY), which tracks the greenback vs. a basket of its main rival currencies, faces extra selling pressure and drops to the area of three-month lows near 103.00.

USD Index risks a deeper drop near term

The index loses further momentum and retreats for the third consecutive session at the beginning of the week, approaching the 103.00 neighbourhood, or three-month lows.

The continuation of the downtrend in the dollar comes amidst the intense appetite for the risk complex, while US yields add to Friday’s recovery early in the European trading session.

For the time being, there are no monetary policy changes, and investors remain confident that the Federal Reserve will begin cutting interest rates in spring 2024.

In the US docket, New Home Sales will take centre stage along with the Dallas Fed Manufacturing Index.

What to look for around USD

In line with the broad-based upbeat mood among traders, the index navigates in a downward path with the immediate milestone at the 103.00 mark for the time being.

Looking at the broader picture, the dollar appears depressed against the backdrop of rising speculation of probable interest rate cuts in H1 2024, all in response to further disinflationary pressures and the gradual cooling of the labour market.

Some support for the greenback, however, still emerges the resilience of the US economy as well as a persistent hawkish narrative from some Fed rate setters.

Key events in the US this week:  New Home Sales (Monday) – FHFA’s House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, Q3 GDP Growth Rate, Goods Trade Balance, Fed Beige Book (Wednesday) – PCE, Core PCE, Initial Jobless Claims, Personal Income, Personal Spending, Pending Home Sales (Thursday) – Final S&P Global Manufacturing PMI, ISM Manufacturing PMI, Construction Spending, Fed’s Powell (Friday).

Eminent issues on the back boiler: Growing perception of a soft landing for the US economy. Speculation of rate cuts at some point in the spring of 2024. Omnipresent geopolitical effervescence vs. Russia and China. Potential spread of the Middle East crisis to other regions.

USD Index relevant levels

Now, the index is down 0.14% at 103.27 and faces immediate contention at 103.17 (monthly low November 21) ahead of 102.93 (weekly low August 30) and then the psychological 100.00 threshold. On the upside, the breakout of 104.21 (weekly high November 22) could expose a move to 106.00 (weekly high November 10) and finally 106.88 (weekly high October 26).