• DXY is trading with no clear direction in the middle of 102.00.
  • Investors remain cautious about the ECB and the US CPI.
  • The initial weekly claims come next in the NA session.

The greenback, in terms of US Dollar Index (DXY)alternate gains and losses around 102.50 on Thursday.

The US dollar index focuses on the ECB and the Fed

The index is keeping trade choppy so far this week amid widespread cautious investor sentiment ahead of the upcoming ECB interest rate decision and the release of US inflation figures followed by the CPI Friday.

The dollar’s erratic performance is in line with the equally choppy mood in US cash markets, where yields appear to be stuck at the upper end of the recent range and still tuned into speculation regarding the policy direction of the Fed.

In US dataspace, the usual initial claims will be the only version later in the NA session.

What to look for around the USD

The index appears to be in wait mode ahead of the ECB’s impending event and May US Inflation release on Friday.

The dollar weakness seen in mid-May came in response to growing perceptions that inflation may have peaked in April, which in turn supports the idea that the Fed may not need to be as aggressive as market participants expect when it comes to raising the Fed Funds Rate.

In the meantime, the Fed’s divergence from most of its G10 counterparts, coupled with bouts of geopolitical turmoil, higher US yields and a potential “hard landing” for the US economy, are all factors that still support a stronger dollar in the coming months.

Key events in the United States this week: Initial Claims (Thursday) – Inflation Rate, Snapshot Consumer Sentiment, Monthly Fiscal Statement (Friday).

Significant problems on the rear boiler: Powell’s “soft” landing… what does it mean? Escalation of geopolitical effervescence in the face of Russia and China. Fed more aggressive rate path this year and 2023. US-China trade conflict. The future of Biden’s Build Back Better plan.

Relevant US Dollar Index Levels

Now the index gains 0.04% to 102.59 and a break above 102.83 (June 7th monthly high) would open the door to 105.00 (May 13th 2022 high) and finally to 105.63 (high from December 11, 2002). On the other hand, the next conflict emerges at 101.66 (55-day SMA) followed by 101.64 (June 3 monthly low) and then 101.29 (May 30 monthly low).