USD Index treads water around the 103.00 region

The greenback, when tracked by the USD Index (DXY), navigates within a tight range in the wake of the opening bell in Euroland on turnaround Tuesday.

USD Index looks cautious ahead of key releases

The index maintains the trade around Monday’s closing levels near the 103.00 yardstick against the backdrop of reduced trade conditions and scarce volatility due to the US Independence Day holiday.

Looking at the broader picture, the index continues to monitor developments around the potential next steps by the Federal Reserve in the next months vs. the persistent resilience observed in US key fundamentals.

So far, and according to CME Group’s FedWatch Tool, the probability of a 25 bps rate hike at the July 26 meeting is close to 90%.

In the US data space, the week is expected to be dominated by releases from the labour market (ADP report, weekly Initial Claims and Nonfarm Payrolls) as well as by the FOMC Minutes and the ISM Services PMI.

What to look for around USD

The index keeps the trade around the 103.00 hurdle amidst the inactivity in the US markets on Tuesday.

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: Factory Orders, FOMC Minutes (Wednesday) – ADP Employment Change, Balance of Trade, Initial Jobless Claims, Final Services PMI, ISM Services PMI (Thursday) – Nonfarm Payrolls, Unemployment Rate (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 up 0.01% at 102.98 and the breakout of 103.54 (weekly high June 30) would open the door to 104.69 (monthly high May 31) and then 104.79 (200-day SMA). On the other hand, the next contention emerges at 101.92 (monthly low June 16) followed by 100.78 (2023 low April 14) and finally 100.00 (round level).