US Dollar Index: Bulls appear doubtful around 102.50 ahead of data, ECB

DXY trades without clear direction in the mid-102.00s.
Investors remain cautious ahead of the ECB, US CPI.
Weekly Initial Claims come next in the NA session.

Pablo Piovano FXStreet

The greenback, in terms of the US Dollar Index (DXY), alternates gains with losses around 102.50 on Thursday.

US Dollar Index focuses on ECB, Fed

The index keeps the choppy trade so far this week amidst the generalized cautious mood among investors ahead of the upcoming ECB interest rate decision and the release of US inflation figures tracked by the CPI on Friday.

The erratic performance in the dollar comes in line with the equally choppy mood in the US cash markets, where yields seem to be stuck in the upper end of the recent range and always looking at speculations regarding the Fed’s policy for direction.

In the US data space, the usual Initial Claims will be the sole release later in the NA session.

What to look for around USD

The index seems to be in a waiting-mode ahead of the imminent ECB event and the publication of May’s US inflation on Friday.

The dollar’s weakness seen in mid-May came in response to the rising perception that inflation might have peaked in April, which in turn supports the idea that the Fed may not need to be as aggressive as market participants expect when it comes to raising the Fed Funds rates.

In the meantime, the Fed’s divergence vs. most of its G10 peers coupled with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy are all factors still supportive of a stronger dollar in the next months.

Key events in the US this week: Initial Claims (Thursday) – Inflation Rate, Flash Consumer Sentiment, Monthly Budget Statement (Friday).

Eminent issues on the back boiler: Powell’s “softish” landing… what does that mean? Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is gaining 0.04% at 102.59 and a break above 102.83 (monthly high June 7) would open the door to 105.00 (2022 high May 13) and finally 105.63 (high December 11 2002). On the other hand, the next contention emerges at 101.66 (55-day SMA) followed by 101.64 (monthly low June 3) and then 101.29 (monthly low May 30).

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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