USD Index flirts with multi-week tops near 104.50, focus on Fedspeak, debt ceiling

• The index resumes the upside and pokes with recent tops.
• Firmer risk-off mood lends extra support to the dollar.
• Fed’s Bowman, Harker, Jefferson are due to speak later.

The greenback, in terms of the USD Index (DXY), adds to Tuesday’s gains and flirts once again with the area of multi-week peaks around 104.50.

USD Index stronger on risk-off trade

The index advances for the second session in a row in a context dominated by investors’ exodus from the risk-associated complex, particularly after disappointing results from the Chinese docket earlier in the Asian trading hours.

On another front, President Biden and House Speaker McCarthy negotiated legislation to raise the $31.4 trillion US debt ceiling and achieve new federal spending cuts advanced to the full House of Representatives for debate and a vote on passage on Wednesday after the House Rules Committee voted 7-6 late on Tuesday to adopt the rules permitting full chamber discussion.

In the meantime, speculation of a 25 bps rate hike by the Federal Reserve at the June 14 gathering remains firm and appears the most likely scenario according to CME Group’s FedWatch Tool.

In the US data space, weekly MBA Mortgage Applications and the Fed’s Beige Book will be the sole releases later on Wednesday along with speeches by FOMC’s M. Bowman (permanent voter, centrist), Philly Fed P. Harker (voter, hawk) and FOMC’s P. Jefferson (permanent voter, centrist).

What to look for around USD

The index picks up fresh pace and trades close to recent highs in the 104.40/50 band on Wednesday.

In the meantime, rising bets of another 25 bps at the Fed’s next gathering in June appear underpinned by the steady resilience of key US fundamentals (employment and prices mainly) amidst the ongoing rally in US yields and the DXY.

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

Key events in the US this week: Mortgage Applications, Fed’s Beige Book (Wednesday) – ADP Employment Change, Initial Jobless Claims, Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Debt ceiling. 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 up 0.39% at 104.46 and the surpass of 104.53 (monthly high May 30) would open the door to 105.63 (200-day SMA) and then 105.88 (2023 high March 8). On the flip side, the next support emerges at the 100-day SMA at 102.88 seconded by the 55-day SMA at 102.44 and finally 101.01 (weekly low April 26).