USD Index appears bid around 104.20 ahead of data

• The index adds to Tuesday’s advance above the 104.00 mark.
• Investors continue to favour a Fed’s pause in June.
• Weekly Mortgage Applications, trade balance next on tap.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main competitors, extends Tuesday’s gains and maintains the trade above the 104.00 yardstick on Wednesday.

USD Index looks at Fed, data

The index advances for the second session in a row and so far manages well to keep business above the 104.00 hurdle on Wednesday.

The uptick in the index comes amidst steady expectations of a pause in the Fed’s normalization of its monetary conditions in June, while investors continue to pencil in a 25 bps rate hike in July.

In the meantime, US yields lack direction and trade around Tuesday’s closing levels across the curve so far.

In the US data space, weekly Mortgage Applications tracked by MBA are seconded by the Balance of Trade and Consumer Credit Change.

What to look for around USD

The index looks to consolidate the trade above the 104.00 mark amidst the absence of strong catalysts so far this week.

In the meantime, bets of another 25 bps at the Fed’s next gathering in June 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: 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 0.02% at 104.14 and the breakout of 104.69 (monthly high May 31) would open the door to 105.51 (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 102.96 (100-day SMA) and finally 102.48 (55-day SMA).