• The index fades part of the recent 2-day advance on Wednesday.
• US debt talks entered an impasse on Tuesday.
• Weekly Mortgage Applications, FOMC Minutes next on tap.

The upside momentum in the greenback appears to struggle to gather fresh impulse beyond 103.50/60 when gauged by the USD Index (DXY).

USD Index focuses on debt ceiling, FOMC Minutes

The index comes under pressure and leaves behind two consecutive daily advances on the back of some recovery in the sentiment surrounding the risk complex on Wednesday.

In the meantime, negotiations to reach a deal to avoid an unprecedented US default have once again yielded no results on Tuesday and left the door open to an agreement on the last minute at some point during last week.

In the US docket, weekly Mortgage Applications tracked by MBA are due later ahead of the release of the FOMC Minutes of the May 3-4 gathering.

What to look for around USD

The index seems to have met some decent resistance area around 2-month highs near 103.60/70 so far this week.

In the meantime, monthly highs in the 103.60/65 band emerge as immediate targets for bulls amidst diminishing signals that the Fed will probably pause its normalization process in the near future, all in response to the steady resilience of key US fundamentals (employment and prices mainly).

Favouring a pause by the Fed, instead, appears 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, FOMC Minutes (Wednesday) – Initial Jobless Claims, Chicago Fed National Activity Index, Pending Home Sales, Advanced Q1 GDP Growth Rate (Thursday) – PCE/Core PCE, Durable Goods Orders, Flash Goods Trade Balance, Personal Income/Spending, Final 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. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is down 0.12% at 103.39 and faces the next support at the 55-day SMA at 102.45 seconded by 101.01 (weekly low April 26) and finally 100.78 (2023 low April 14). On the upside, a break above 103.65 (monthly high May 23) could open the door to 105.73 (200-day SMA) and then 105.88 (2023 high March 8).