USD Index struggles for direction near 103.20 as investors digest US CPI

The USD Index (DXY), which gauges the greenback vs. a basket of its main competitors, manages to regain some composure and leaves behind earlier lows in the sub-103.00 region on turnaround Tuesday.

USD Index meets support near 102.60

After bottoming out in multi-day lows near 102.60, the index seems to have met some dip buyers and quickly regained the 103.00 barrier and beyond.

The dollar, in the meantime, now alternates gains with losses after US inflation figures tracked by the CPI rose more than initially estimated during January. On this, consumer prices rose 6.4% over the last twelve months and 5.6% when excluding food and energy costs.

Earlier in the session, the NFIB Business Optimism Index edged higher to 90.3 in January. Later in the session, Dallas Fed L.Logan (voter, centrist), Philly Fed P.Harker (voter, hawk) and NY Fed J.Williams (permanent voter, centrist) are all due to speak.

What to look for around USD

The dollar remains within a consolidative phase in the lower end of the recent range just above the 103.00 level against the backdrop of flat risk appetite trends.

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 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: Inflation Rate (Tuesday) – MBA Mortgage Applications, Retail Sales, Industrial Production, Business Inventories, NAHB Index, TIV Flows (Wednesday) – Building Permits, Housing Starts, Initial Jobless Claims, Philly Fed Index (Thursday) – CB Leading Index (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 0.11% at 103.18 and the breach of 100.82 (2023 low February 2) would open the door to 100.00 (psychological level) and finally 99.81 (weekly low April 21 2022). On the other hand, the next resistance level emerges at 103.96 (monthly high February 7) seconded by 105.63 (2023 high January 6) and then 106.45 (200-day SMA).