US Dollar Index remains offered and challenges the 104.00 level

• The Index tests the 104.00 area on Thursday.
• The probability of a Fed pause in June weighs on the dollar.

The dollar accelerates its daily fall and flirts with the 104.00 area when measured by the US Dollar Index (DXY) Thursday.

USD Index Weakens on Risk Appetite and Fed Doldrums

The index is trading on the back foot and reversing two straight sessions of gains, including a fresh two-month high near 104.40 on May 31, against a backdrop of investor repricing from a pause in the Fed’s tightening cycle as early as June.

In fact, comments from Harker and Jefferson late on Wednesday suggested that the Federal Reserve might “skip out” a rate hike at the next meeting, prompting a change of heart among investors and a consequent sell-off in the dollar.

However, data released on the US agenda early Thursday continued to point to the strength of the US economy, after the ADP report showed the US private sector added nearly 280,000 jobs. in May and that weekly claims increased by 232,000 in the week to May 26.

What to expect around the USD

The index is facing some selling pressure near the 104.00 area, due to renewed optimism surrounding risk-associated space.

Meanwhile, bets for another 25 basis points at the next Fed meeting in June suddenly reversed course despite firm resistance from leading US fundamentals (employment and prices mainly), taking a toll on the recent recovery of the dollar and favoring a further decline in US yields.

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

technical levels

Now, the index is down 0.30% at 103.91 and faces next support at the 100-day SMA at 102.90, followed by the 55-day SMA at 102.44 and finally 101.01 (weekly low Apr 26). On the other hand, breaking above 104.69 (31 May monthly high) would open the door to 105.60 (200-day SMA) and then 105.88 (March 8 high).