• The index lacks conviction to spark a more serious rebound.
• US ADP report came in below expectations in March.
• Next of note will come the ISM Non-Manufacturing.

The greenback returns to the 101.50 region when gauged by the USD Index (DXY) following a failed attempt to advance north of the 101.75/80 band earlier on Wednesday’s session.

USD Index loses traction post-ADP

The index now adds to the weekly leg lower and puts the area of multi-week lows to the test once again following a bout of weakness after the release of the ADP report.

Indeed, speculation of a potential “on hold” stance at the Fed’s meeting in May was reinforced after the ADP report showed the US private sector added fewer jobs than initially expected during last month (145K).

Further data saw the trade deficit widened to $70.5B in February while the final Services PMI and the ISM Non-Manufacturing are due later in the NA session.

Back to the Fed, CME Group’s FedWatch Tool now sees the probability that the Fed could leave rates unchanged at nearly 55% at the May 3 gathering.

What to look for around USD

Price action around the index remains depressed well below the 102.00 mark against the backdrop of rising prudence among market participants ahead of the release of US Nonfarm Payrolls in the second half of the week.

Also weighing on the current bearish outlook for the dollar emerges the almost omnipresent view that the Federal Reserve could pause its ongoing tightening stance in May, which has been propped up by persevering disinflation, nascent weakness in some key fundamentals and fresh concerns surrounding the banking sector

In addition, dwindling hawkishness from Fed rate setters also seems to have removed some strength from the greenback, particularly since the latest FOMC gathering and events around SVB and other medium-size US lenders.

Key events in the US this week: MBA Mortgage Applications, ADP Employment Change, Balance of Trade, Final Services PMI, ISM Non-Manufacturing (Wednesday) – Initial Jobless Claims (Thursday) – Non-Farm Payrolls, Unemployment Rate, Consumer Credit Change (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 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.07% at 101.49 and the breach of 101.43 (monthly low April 5) would open the door to 100.82 (2023 low February 2) and finally 100.00 (psychological level). On the other hand, the next resistance level aligns at 103.33 (55-day SMA) followed by 103.91 (100-day SMA) and then 105.88 (2023 high March 8).