USD Index regains the smile and surpasses 103.00 ahead of data, ECB

The USD Index (DXY), which tracks the Greenback vs. a bundle of its main competitors, manages to pick up some traction and breaks above the key 103.00 hurdle on Thursday.

USD Index looks supported near 102.70

After two consecutive daily losses, the index regains some balance and reclaims the area above the 103.00 barrier following the post-FOMC decline to multi-week lows in the 102.70/65 band on Wednesday.

The daily uptick in the Buck appears propped up by the move higher in US yields across the curve after the FOMC event left the door open to extra rate hikes in H2 2023.

Indeed, and back at the Fed’s gathering, officials decided to maintain interest rates at their current level after a series of ten consecutive increases. However, they surprised observers by projecting an additional two quarter-point hikes for the remainder of the year in their economic forecasts. This is indicative that the majority of policymakers are in agreement that further tightening is necessary to address inflationary pressures.

Moving forward, the US Dollar will also pay close attention to the ECB meeting later in the European afternoon, as investors largely anticipate a 25 bps hike by the central bank.

An interesting session in the US docket will see usual weekly Claims seconded by the Philly Fed Manufacturing gauge, Industrial and Manufacturing Production, Business Inventories and TIC Flows to conclude the daily calendar.

What to look for around USD

The index gathers decent impulse after bottoming out in the vicinity of 102.70 in the wake of the FOMC gathering on Wednesday.

In the meantime, bets for another 25 bps rate hike at the Fed’s gathering in July remain well on the cards against the backdrop of the steady resilience of key US fundamentals (employment and prices, mainly).

The above-mentioned scenario was also reinforced by Chief Powell on Wednesday after he deemed the July meeting “live”, while the majority of the Committee seems ready to resume the tightening campaign as soon as next month.

Key events in the US this week: Initial Jobless Claims, Philly Fed Manufacturing Index, Retail Sales, NY Empire State Index, Industrial Production, Business Inventories, TIC Flows (Thursday) – Flash Michigan Consumer Sentiment (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 gaining 0.14% at 103.14 and the breakout of 104.69 (monthly high May 31) would open the door to 105.32 (200-day SMA) and then 105.88 (2023 high March 8). On the downside, the next support emerges at 102.66 (monthly low June 14) seconded by 102.56 (55-day SMA) and finally 100.78 (2023 low April 14).