USD Index looks to extend the recovery to 103.00 and above ahead of Powell

The greenback, when tracked by the USD Index (DXY), manages to keep the weekly recovery well in place around the 102.60 region on Wednesday.

USD Index focuses on Powell

The index so far advances for the fourth session in a row on Wednesday, as investors’ concerns over the recovery in China remain well in place along with rising prudence ahead of the first semiannual testimony by Chair J. Powell.

On the latter, consensus among traders anticipates a hawkish tone from Powell. Despite maintaining interest rates at their previous meeting last week, policymakers' projections indicate the likelihood of approximately two more 25 bps rate hikes or alternatively, a single half-point increase.

In the US data space, MBA Mortgage Applications is due along with the weekly report on US crude oil inventories by the API.

What to look for around USD

The greenback maintains alive the rebound from last week’s lows around the 102.00 neighbourhood for yet another session on Wednesday.

Meanwhile, the likelihood of another 25 bps hike at the Fed's upcoming meeting in July remains high, supported by the continued strength of key US fundamentals such as employment and prices.

This view was further bolstered by comments from Fed Chief Powell at the June FOMC event, who referred to the July meeting as "live" and indicated that most of the Committee is prepared to resume the tightening campaign as early as next month.

Key events in the US this week: MBA Mortgage Applications. Fed’s Powell Testimony (Wednesday) – Chicago Fed National Activity Index, Initial Jobless Claims, Fed’s Powell Testimony, Existing Home Sales (Thursday) – Advanced Manufacturing/Services PMIs (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 2023/early 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is gaining 0.07% at 102.60 and the breakout of 103.06 (100-day SMA) would open the door to 104.69 (monthly high May 31) and then 105.18 (200-day SMA). On the downside, the next support emerges at 102.00 (monthly low June 16) followed by 100.78 (2023 low April 14) and finally 100.00 (round level).