USD Index hovers around 104.50 ahead of key data

The USD Index (DXY), which gauges the greenback vs. a basket of its main competitors, struggles for direction in the mid-104.00s on Thursday.

USD Index looks to data, Fedspeak

The upside momentum in the index appears to have met some initial resistance in the 104.50 zone so far this week.

In the meantime, the cautious trade appears to prevail on Thursday ahead of the release of the US inflation figures tracked by the PCE on Friday – the Fed’s preferred gauge.

The monthly rally in the dollar remains underpinned by the hawkish narrative from Fed speakers as well as the resilient stance of the US economy, particularly in the labour market.

Furthermore, and despite there were no surprises at the publication of the FOMC Minutes late on Wednesday, participants did reiterate that further evidence is still needed to assess a convincing loss of traction of the inflation pressures.

Moving forward, the US data space will see another revision of the Q4 GDP Growth Rate, usual weekly Claims and the Chicago Fed National Activity Index.

What to look for around USD

The dollar faces an initial up barrier near 104.50 ahead of the release of key US results, particularly the PCE for the month of January (due on Friday).

The probable pivot/impasse in the Fed’s normalization process narrative is expected to remain in the centre of the debate along with the hawkish message from Fed speakers, all after US inflation figures for the month of January showed consumer prices are still elevated, the labour market remains tight and the economy maintains its resilience.

The loss of traction in wage inflation – as per the latest US jobs report - however, seems to lend some support to the view that the Fed’s tightening cycle have started to impact on the still robust US labour markets somewhat.

Key events in the US this week: Advanced Q4 GDP Growth Rate, Initial Jobless Claims, Chicago Fed National Activity Index (Thursday) – PCE, Core PCE, Personal Income/Spending, Final Michigan Consumer Sentiment, New Home Sales (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Slower pace of interest rate hikes by the Federal Reserve vs. shrinking odds for a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.09% at 104.40 and faces the next hurdle at 104.66 (monthly high February 27) seconded by 105.63 (2023 high January 6) and then 106.45 (200-day SMA). On the other hand, the breach of 102.58 (weekly low February 14) would open the door to 100.82 (2023 low February 2) wand finally 100.00 (psychological level).