USD Index extends the upside above 104.00 ahead of key data

• The index adds to Friday’s gains beyond the 104.00 barrier.
• Markets continue to lean towards a Fed’s pause in June.
• US ISM Services PMI, Factory Orders next on tap in the docket.

The greenback, in terms of the USD Index (DXY), starts the new trading week in a positive fashion beyond the 104.00 hurdle on Monday.

USD Index looks at data, Fed bets

The index so far advances for the second session in a row and reclaims the area above the 104.00 level on the back of further selling pressure in the risk-linked galaxy despite positive prints from the Chinese calendar earlier in the Asian session.

In the meantime, expectations of an impasse at the Fed’s tightening cycle at the June 14 event continue to run high and the probability of this scenario hovers around 70% according to CME Group’s FedWatch Tool.

Moving forward, traders are expected to follow the release of the ISM Services PMI due later in the NA session along with the final S&P Global Services PMI for the month of May as well as April’s Factory Orders.

What to look for around USD

The index picks up further pace and looks to regain the bullish outlook above 104.00 at the beginning of the week.

In the meantime, bets of another 25 bps at the Fed’s next gathering in June suddenly reversed course in spite of the steady resilience of key US fundamentals (employment and prices, mainly), denting the recent rally in the dollar and favouring a further decline in US yields.

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

Key events in the US this week: Final Services PMI, ISM Services PMI, Factory Orders (Monday) – IBD/TIPP Economic Optimism index (Tuesday) – MBA Mortgage Applications, Balance of Trade, Consumer Credit Change (Wednesday) – Initial Jobless Claims, Wholesale Inventories (Thursday).

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 0.15% at 104.19 and the breakout of 104.69 (monthly high May 31) would open the door to 105.56 (200-day SMA) and then 105.88 (2023 high March 8). On the other hand, the next support aligns at 103.38 (monthly low June 2) seconded by the 100-day SMA at 102.93 and finally 102.44 (55-day SMA).