US Dollar Index (DXY) looking to regain bullish traction near 105.60

• The index comes under some pressure near 105.90.
• The February ADP report exceeded expectations.
• Powell will testify before Congress again later in the session.

He USD loses some of the initial momentum in the 106.00 zone and revisits the 105.50 level measured by the USD Index (DXY) on Wednesday.

USD Index Heads for 106.00 Barrier and Above

Following the initial move towards 106.00, the dollar is now facing some selling pressure as investors await Fed Chairman Jerome Powell’s second semi-annual testimony to Congress.

The sharp turn in the dollar is also accompanied by a corrective fall in US yields across the curve, shortly after the short leg hit new year highs above 5%.

The recent rise in the dollar and US yields has been helped by investor sentiment shifting towards a 50 basis point rate hike by the Fed at the March meeting. In this sense, the CME Group’s FedWatch tool places the probability of such a scenario at around 75%, compared to 9% a month ago.

In the US, MBA mortgage applications rose 7.4% in the week to March 3 and the ADP report showed the US private sector added 242,000 jobs over the past month, more than initially estimated. In addition, the trade balance showed a deficit of 68.3 billion dollars in January.

What to expect around the USD

The index accelerates bullish momentum and sails to multi-month highs after Powell’s hawkish testimony from the Fed on Tuesday.

The likely pivot/impasse in the Fed normalization narrative is expected to remain at the center of the debate along with the aggressive messaging from Fed members, all after US inflation figures. January will show that consumer prices remain high, the labor market remains tight and the economy remains resilient.

However, the loss of traction in wage inflation, according to the latest US jobs report, seems to give some support to the view that the Fed’s tightening cycle has started to affect labor markets to some extent. Americans, still robust.

technical levels

Now, the index loses 0.09% at 105.52 and a break of 104.09 (weekly minimum from March 1) would open the door at 103.50 (55-day SMA) and finally to 102.58 (weekly low from Feb 14). On the other hand, the next bullish barrier stands at 105.88 (March 8 high), followed by 106.59 (200-day SMA) and 107.19 (November 30, 2022 weekly high).