USD Index regains the smile and retargets 100.00

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• The index bounces off lows around 99.60 on Friday.
• US yields give signs of life following the recent strong pullback.
• Advanced Consumer Sentiment will take centre stage later in the session.

The greenback, when measured by the USD Index (DXY), now manages to regain some upside traction and trade closer to the psychological barrier at 100.00.

USD Index meets support near 99.60

After bottoming out in the vicinity of 99.60 during early trade, the index now picks up pace and appears to have embarked on a potential challenge of the critical 100.00 region on Friday.

While the recent fierce sell-off dragged the greenback to levels last seen in early April 2022, expectations of another 25 bps rate hike by the Federal Reserve at its July 26 meeting remain firm.

However, the likelihood of extra rate raises beyond July now appear dwindled, particularly in response to the persistent disinflationary pressures as well as the downtrend in producer prices.

Later in the NA session, the salient event is expected to be the release of the advanced prints of the Michigan Consumer Sentiment for the month of July, along with Export/Import Prices.

What to look for around USD

The index remains under heavy pressure and attempts a tepid recovery with immediate target at the 100.00 region.

Meanwhile, the likelihood of another 25 bps hike at the Fed’s upcoming meeting in July remains high and supported by the still tight US labour market and despite the persevering disinflationary pressures.

This view was further bolstered by comments from Fed Chief Powell at the June FOMC event, who referred to the July meeting as “live” and indicated that most of the Committee is prepared to resume the tightening campaign as early as next month.

Key events in the US this week Advanced Michigan Consumer Sentiment (Friday).

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. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is up 0.13% at 99.91 and the breakout of 100.00 (round level) could open the door to 102.72 (55-dat SMA) and then 103.54 (weekly high June 30). On the downside, the next support emerges at 99.57 (2023 low July 13) followed by 97.68 (weekly low March 30 2022) and 95.17 (monthly low February 10 2022).