USD Index: Upside appears capped by 104.00 so far

Price action around the greenback appears somewhat inconclusive in the low-103.00s when measured by the USD Index (DXY) on Wednesday.

USD Index: Bullish attempts look limited near 104.00

The index navigates the area of Tuesday’s closing levels around 103.30 against the backdrop of a tepid improvement in the risk-associated universe, while the recent bull run appears to have met some decent resistance near the 104.00 barrier.

In the meantime, investors seem to have fully digested Friday’s Payrolls figures (517K) and the absence of surprises at Powell’s Q&A session and is expected to shift their focus of attention to the upcoming Fedspeak.

In the US docket, weekly MBA Mortgage Applications and Wholesale Inventories are due later in the NA session seconded by speeches by NY Fed J.Williams (permanent voter, centrist), FOMC M.Barr (permanent voter, centrist) and FOMC C.Waller (permanent voter, hawk).

What to look for around USD

The dollar keeps correcting lower after hitting fresh tops near the 104.00 hurdle on Tuesday, always amidst a better mood in the risk appetite trends.

The idea of a probable pivot/impasse in the Fed’s normalization process now looks mitigated in favour of a tighter-for-longer narrative, which appears almost exclusively underpinned by the recent NFP prints. This view, however, is expected to take centre stage in the upcoming speeches by Fed’s rate setters.

The loss of traction in wage inflation, however, seems to lend some support to the view that the Fed’s tightening cycle have started to impact on the robust US labour markets somewhat.

Key events in the US this week: MAB Mortgage Applications, Wholesale Inventories (Wednesday) – Initial Jobless Claims (Thursday) – Flash Consumer Sentiment (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 advancing 0.06% at 103.39 and faces the immediate up barrier at 103.96 (monthly high February 7) seconded by 105.63 (2023 high January 6) and then 106.45 (200-day SMA). On the other hand, 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).