USD Index extends the corrective decline to the 103.80 region

• The index loses further ground and revisits 103.80.
• Expectations of a Fed’s pause in June remain high.
• The IBD/TIPP index will be the only release in the docket.

The greenback, when tracked by the USD Index (DXY), adds to Monday’s retracement and slips back to the 103.80 region ahead of the opening bell in Euroland on Tuesday.

USD Index looks at risk trends, Fed

The index now extends the pessimism seen at the beginning of the week and leaves behind the 104.00 barrier on the back of firmer appetite for the risk-associated complex.

Collaborating with the softer tone in the dollar appears the firmer expectations of an impasse by the Federal Reserve at its gathering on June 14. The latter gathered pace following comments from a couple of Fed officials last week (Jefferson and Harker) and was somewhat underpinned after wage inflation eased further in May, as per the latest Nonfarm Payrolls figures.

In the calendar, the IBD/TIPP Economic Optimism index will be the sole release along with the weekly report by the API on US crude oil inventories.

What to look for around USD

The corrective pullback in the index picks up further pace and breaks below the key 104.00 support on turnaround Tuesday.

In the meantime, bets of another 25 bps at the Fed’s next gathering in June suddenly reversed course in spite of the steady resilience of key US fundamentals (employment and prices, mainly), denting the recent rally in the dollar and favouring a further decline in US yields.

Bolstering a pause by the Fed instead appears to be the extra tightening of credit conditions in response to uncertainty surrounding the US banking sector.

Key events in the US this week: Final Services PMI, ISM Services PMI, Factory Orders (Monday) – IBD/TIPP Economic Optimism index (Tuesday) – MBA Mortgage Applications, Balance of Trade, Consumer Credit Change (Wednesday) – Initial Jobless Claims, Wholesale Inventories (Thursday).

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 losing 0.11% at 103.87 and faces the next support at 103.38 (monthly low June 2) seconded by the 100-day SMA at 102.94 and finally 102.45 (55-day SMA). On the other hand, the breakout of 104.69 (monthly high May 31) would open the door to 105.53 (200-day SMA) and then 105.88 (2023 high March 8).