• The index faces some selling pressure near 102.40.
• The small improvement in the risk appetite weighs on the Dollar.
• Weekly Mortgage Applications will be the sole release in the docket.

The greenback, in terms of the USD Index (DXY), retreats from recent tops near 102.80 amidst a broad-based improvement in the risk sentiment.

USD Index looks at risk trends, US CPI

The index comes under downside pressure after two consecutive daily advances and gives away part of the recent gains to the 102.80/85 band, all against the backdrop of a better tone in the risk-associated universe.

In the meantime, US yields trade without a clear direction amidst speculation of a lower print at Thursday’s release of US inflation figures for the month of July, which should support the view that the Federal Reserve might be done hiking rates for the time being.

It is worth recalling that Fed’s M. Bowman advocated on Monday for further tightening in case disinflationary pressures mitigate, while her colleague T. Barkin reiterated that inflation remains too elevated and the labour market appears resilient and P. Harker opened the door to an impasse at current levels for some time and potential rate cuts in 2024.

In the US data space, the only release will be the usual weekly Mortgage Applications measured by MBA for the week ended on August 4.

What to look for around USD

The index keeps the trade north of 102.00 so far this week, although it seems to have met quite a decent resistance near 102.90, or monthly highs.

Other than risk appetite trends, the dollar could face extra headwinds in response to the data-dependent stance from the Fed against the current backdrop of persistent disinflation and cooling of the labour market.

Furthermore, speculation that the July hike might have been the last of the current hiking cycle is also expected to keep the buck under some pressure for the time being.

Key events in the US this week: MBA Mortgage Applications (Wednesday) – Inflation Rate, Initial Jobless Claims (Thursday) – Producer Prices, Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft or hard landing for the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 2023 or early 2024. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is losing 0.15% at 102.39 and faces initial support at 101.74 (monthly low August 4) seconded by 100.55 (weekly low July 27) and then 100.00 (psychological level). On the other hand, the breakout of 102.84 (weekly high August 3) would open the door to 103.43 (200-day SMA) and finally 103.57 (weekly high June 30).