USD Index remains under pressure near 102.00, focus on PMIs

The greenback maintains the consolidative phase well in place for yet another session around the 102.00 neighbourhood when gauged by the USD Index (DXY) on turnaround Tuesday.

USD Index now looks at upcoming data

The index extends the erratic performance on Tuesday, always around the 102.00 neighbourhood and close to the area of multi-month lows.

There are no changes to the macro scenario around the greenback, where the debate between markets’ expectations of a pivot in the Fed’s policy continue to face the hawkish narrative from Fed’s policy makers, all ahead of the FOMC event on February 1.

On the latter, a 25 bps interest rate hike remains fully priced in according to CME Group’s FedWatch Tool.

In the US data space, advanced Manufacturing and Services PMIs for the first month of the year will take centre stage later in the session.

What to look for around USD

The dollar’s price action remains subdued in the lower end of the recent range around the 102.00 region so far this week.

The idea of a probable pivot in the Fed’s policy continues to weigh on the greenback and keeps the price action around the DXY depressed. This view, however, also comes in contrast to the hawkish message from the latest FOMC Minutes and recent comments from rate setters, all pointing to the need to advance to a more restrictive stance and stay there for longer, at the time when rates are seen climbing above the 5.0% mark.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and the continuation of its hiking cycle.

Key events in the US this week: Flash Manufacturing/Services PMIs (Tuesday) – MBA Mortgage Applications (Wednesday) – Durable Goods Orders, Advanced Q4 GDP Growth Rate, Chicago Fed National Activity Index, Initial Jobless Claims, New Home Sales (Thursday) – PCE, Core PCE, Personal Income, Personal Spending, Pending Home Sales, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Prospects for extra rate hikes by the Federal Reserve vs. speculation of 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 retreats 0.12% at 101.89 and faces the next support at 101.52 (2023 low January 18) seconded by 101.29 (monthly low May 30 2022) and finally 100.00 (psychological level). On the upside, a breakout of the weekly high at 102.89 (January 18) would pave the way for a test of 105.63 (monthly high January 6) and then 106.45 (200-day SMA).