USD Index bounces off multi-month lows near 101.50 ahead of key US data

• The index drops to the 101.50 level, or new 8-month low.
• US yields attempt a tepid rebound on Thursday.
• Flash Q4 GDP, weekly Claims, Durable Goods Orders next on tap.

The greenback regains the 101.60/70 band after bottoming out in fresh 8-month lows around 101.50 when gauged by the USD Index (DXY) on Thursday.

USD Index now focuses on key data releases

The index appears to have regained downside traction and keeps well and sound the gradual multi-session decline well south of the 102.00 mark on Thursday.

The increasing pessimism around the dollar has been exacerbated by rising speculation of a potential pivot in the Fed’s policy, a view that has been openly confronted by the unabated hawkish narrative from Fed-speakers in past sessions.

So far, investors have already priced in a 25 bps rate hike at the FOMC event on February 1, although the attention is expected to be on Powell’s press conference afterwards, where the potential next steps of the Fed should take centre stage.

Busy day in the US calendar, as flash Q4 GDP figures are due seconded by Durable Goods Orders, the Chicago Fed National Activity Index, Initial Claims, Goods Trade Balance and New Home Sales.

What to look for around USD

The dollar’s price action remains depressed and drags the index to new 8-month lows in the mid-101.00s.

The idea of a probable pivot in the Fed’s policy continues to weigh on the greenback and keeps the price action around the DXY subdued. This view, however, also comes in contrast to the hawkish message from the latest FOMC Minutes and recent comments from rate setters, all pointing to the need to advance to a more restrictive stance and stay there for longer, at the time when rates are seen climbing above the 5.0% mark.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and the continuation of its hiking cycle

Key events in the US this week: Durable Goods Orders, Advanced Q4 GDP Growth Rate, Chicago Fed National Activity Index, Initial Jobless Claims, New Home Sales (Thursday) – PCE, Core PCE, Personal Income, Personal Spending, Pending Home Sales, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Prospects for extra 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 retreats 0.01% at 101.63 and faces the next support at 101.50 (2023 low January 26) seconded by 101.29 (monthly low May 30 2022) and finally 100.00 (psychological level). On the upside, a breakout of the weekly high at 102.89 (January 18) would pave the way for a test of 105.63 (monthly high January 6) and then 106.46 (200-day SMA).