USD Index keeps the bearish tone around 104.50 post-data

  • The index maintains the familiar range in the mid-104.00s.
  • No meaningful reaction after the ECB hiked rates as promised.
  • The Philly Fed index improved marginally to -23.2 in March.

The greenback hovers around the 104.50 region when measured by the USD Index (DXY) amidst the mild rebound in the appetite for the risk complex on Thursday.

USD Index unchanged on data, ECB

The index keeps the trade well below the 105.00 mark against the backdrop of shrinking fears over a potential crisis in the banking system on both sides of the ocean, while the mixed tone in US yields also adds to the lack of traction in the dollar.

In the US calendar, Initial Jobless Claims rose by 192K in the week to March 11, while the Philly Fed Manufacturing Index ticked marginally higher to -23.2 for the current month. From the housing sector, Building Permits rose 13.8% MoM in February (or 1.524M units) and Housing Starts expanded 9.8% MoM, or 1.45M units.

In the meantime, investors’ concerns around the banking system look somewhat alleviated after the Swiss National Bank (SNB) will lend around $54B to Credit Suisse.

What to look for around USD

The index comes under pressure after hitting fresh tops past the 105.00 mark on Wednesday.

The risk aversion derived from banking jitters appears somewhat diminished and supports some selling pressure in the dollar amidst firmer conviction among investors of a 25 bps rate hike by the Federal Reserve at the March 22 meeting.

So far, the index remains under pressure against the backdrop of reinvigorated bets of a Fed’s pivot in the short-term horizon. However, the still elevated inflation and the resilience of the US economy continue to play against that view.

Key events in the US this week: Initial Jobless Claims, Housing Starts, Building Permits, Philly Fed Manufacturing Index (Thursday) – Industrial Production, Flash Michigan Consumer Sentiment, CB Leading Index (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Persistent narrative for a Fed’s tighter-for-longer stance. Terminal rates near 5.5%? Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.17% at 104.56 and the breakdown of 103.48 (monthly low March 13) would open the door to 102.58 (weekly low February 14) and finally 100.82 (2023 low February 2). On the other hand, the next hurdle emerges at 105.88 (2023 high March 8) seconded by 106.64 (200-day SMA) and then 107.19 (weekly high November 30 2022).

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