USD Index: Bears remain in control around 103.50

• The index remains on the defensive and flirts with 103.50.
• The dollar looks weaker as investors continued to digest NFP figures.
• Consumer Credit Change, short-term auction next on tap in the docket.

The greenback starts the new trading week on the back foot and retreats to the mid-103.00s region when tracked by the USD Index (DXY).

USD Index looks to risk trends, data, Fed

The index sheds ground for the second session in a row and revisits the key contention area around 103.50 amidst increasing investors’ appetite for the risk-associated universe, all ahead of the opening bell in the old continent on Monday.

Indeed, market participants continue to assess Friday’s results from the US labour market, where the US economy added more jobs than expected during December (+223K), the jobless rate ticked lower to 3.5% but the wage growth showed some loss of momentum.

In fact, traders perceived the latter as a potential factor behind a potential slowdown of future interest rate hikes by the Federal Reserve, triggering a subsequent sharp sell-off in the greenback.

In the US docket, the only release of note will be the Consumer Credit Change for the month of November as well as short-term auctions (3-month, 6-month bills).

What to look for around USD

The dollar keeps the selling bias unchanged at the beginning of the week and puts the strong support region near 103.50 to the test at the beginning of the week.

The mixed results from the US Nonfarm Payrolls for the month of December (Friday) seem to have reignited the idea of a probable pivot in the Fed’s policy in the next months, which comes in contrast to the message from the latest FOMC Minutes, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year.

Furthermore, the tight labour market, still elevated inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: Consumer Credit Change (Monday) – Wholesale Inventories, Fed’s Powell (Tuesday) – MBA Mortgage Applications (Wednesday) – Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of 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 losing 0.41% at 103.48 and the breakdown of 103.39 (monthly low December 30) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level). On the upside, the next hurdle aligns at 105.82 (weekly high December 7) followed by 106.33 (200-day SMA) and then 107.19 (weekly high November 30).