USD Index

The USD Index (DXY) has regained momentum and is retesting the 102.00 zone after a pullback on Thursday. The index has been navigating choppy waters this week, always around the 102.00 neighborhood, amidst alternating risk appetite trends. 

The recovery in the dollar comes as US yields across the curve experience a corrective pullback. The Fed’s anticipated 25 bps rate hike at the May 3 meeting seems to have a consensus following a pause in the hiking cycle. However, the market is still divided on whether the hiking cycle will continue after May.

Later in the NA session, the focus will be on advanced Manufacturing and Services PMIs in the US data space. The absence of strong catalysts has left the price action around the dollar and the rest of the FX space somewhat muted around the 102.00 region this week.

The marked retracement in the dollar since March has been underpinned by the pick-up in the perception that the Federal Reserve could make a pause in its current tightening cycle just after the May meeting. 

However, some factors still emerge in favor of a pivot in the Fed’s normalization process, such as persevering disinflation, nascent weakness in some key fundamentals, and persistent concerns surrounding the banking sector.

Key events in the US this week include Flash Manufacturing/Services PMIs on Friday. Persistent debate over a soft/hard landing of the US economy, terminal interest rate near the peak vs. speculation of rate cuts in 2024, Fed’s pivot, geopolitical effervescence vs. Russia and China, and the US-China trade conflict are some of the eminent issues on the back boiler.

Currently, the index is gaining 0.16% at 101.95 and faces the next hurdle at 102.80 (weekly high April 10) followed by 103.05 (monthly high April 3) and then 103.31 (55-day SMA). On the flip side, breaching 100.78 (2023 low April 14) would open the door to 100.00 (psychological level) and finally 99.81 (weekly low April 21, 2022).


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