DXY Dollar Index extends corrective decline to 103.80 zone

• The DXY index loses more ground and returns to the 103.80 region.
• Expectations for a Fed pause in June remain high.
• The IBD/TIPP index will be the only publication on today’s economic agenda.

He US Dollar DXY Indexwhich measures the strength of the dollar against a basket of major currencies, extends Monday’s pullback and falls to the 103.80 area at the start of the European session on Tuesday.

The DXY index looks at risk trends and the Fed

The DXY Index now extends the pessimism seen earlier in the week and closes below the 104.00 level, affected by firmer sentiment on risk appetite.

Collaborating with the softer tone of the Dollar appear firmer expectations of a Fed pause at their meeting on June 14. These expectations gained momentum following dovish comments from a couple of Fed officials last week (Jefferson and Harker) and were somewhat propped up after wage inflation eased further in May, according to the latest Nonfarm Payrolls figures.

In today’s economic calendar, the IBD/TIPP economic optimism index it will be the only release alongside the weekly API report on US crude oil inventories.

What can we expect around the USD?

The DXY Index corrective retracement gains more pace and breaks below the key support of 104.00 on Tuesday.

Meanwhile, expectations of another 25 basis point hike at the next Fed meeting in June suddenly reversed course despite the firm resistance of the main fundamental indicators of the US (employment and prices, mainly), making a dent in the recent recovery of the dollar and favoring a further decline in US yields.

That said, the further tightening of credit conditions in response to the uncertainty surrounding the US banking sector appears to reinforce the Fed’s pause.

DXY Index Levels

At time of writing, the DXY Index is down 0.11% on the day, trading at 103.87. Next support is at 103.38 (June 2 low), followed by 102.94 (100-day SMA) and 102.45 (55-day SMA). Elsewhere, a break of 104.69 (May 31 high) would open the door to 105.53 (200-day SMA) and then 105.88 (March 8 high).