USD Index keeps the bid bias above 102.00 so far

The USD Index (DXY), which gauges the greenback vs. a bundle of its main rival currencies, extends the optimism seen at the beginning of the week and maintains the trade above the 102.00 mark for the time being.

USD Index remains focused on US CPI

The index keeps the optimism well in place following the auspicious start of the week, always trading above the 102.00 hurdle and despite the now loss of momentum in US yields across different maturities.

The march north in the greenback comes amidst persistent weakness in the risk complex as well as increasing prudence among traders ahead of the publication of key US inflation figures on August 10.

The release of the US CPI for the month of July has grown in importance since Chief Powell emphasized the data-dependent stance from the Federal Reserve when it comes to decision on futures moves on interest rates.

So far, and according to CME Group’s FedWatch Tool, investors see the Fed keeping rates on hold for the remainder of the year. On this, NY Fed J. Williams (permanent voter, centrist) suggested on Monday that the Fed could reduce rates in early 2024.

In the US docket, Philly fed P. Harker (voter, hawk) is due to speak later in the session along with the publication of Balance of Trade, Wholesale Inventories, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index.

What to look for around USD

The index keeps the trade north of 102.00 so far this week, as market participants continue to assess the latest Payrolls figures amidst increasing cautiousness ahead of key US inflation figures due on August 10.

So far, the pronounced rally in DXY seems to have met a tough initial resistance near 102.80, while the dollar could face extra headwinds in response to the data-dependent stance from the Fed against the current backdrop of persistent disinflation and cooling of the labour market.

Furthermore, speculation that the July hike might have been the last of the current hiking cycle is also expected to keep the buck under some pressure for the time being.

Key events in the US this week: Balance of Trade, Wholesale Inventories (Tuesday) – MBA Mortgage Applications (Wednesday) – Inflation Rate, Initial Jobless Claims (Thursday) – Producer Prices, Flash Michigan Consumer Sentiment (Friday).

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

USD Index relevant levels

Now, the index is gaining 0.23% at 102.31 and the breakout of 102.84 (weekly high August 3) would open the door to 103.48 (200-day SMA) and finally 103.57 (weekly high June 30). On the other hand, immediate contention emerges at 101.74 (monthly low August 4) seconded by 100.55 (weekly low July 27) and then 100.00 (psychological level).