US Dollar Index looks anxious around 103.50 on Fed’s day

  • DXY extends the side line trading in the mid-103.00s.
  • US yields resume the upside ahead of the FOMC event.
  • The Fed is expected to raise the FFTR by 50 bps on Wednesday.

The greenback alternates gains with losses in the 103.50 region when tracked by the US Dollar Index (DXY) on Wednesday.

US Dollar Index focuses on Fed, Powell

The index gyrates around the mid-103.00s and trades without a clear direction midweek, as market participants wait for the FOMC event due later in the European evening.

Still around the FOMC, the Committee is expected to raise the Fed Funds Target Range (FFTR) by 50 bps to 0.75%-1.00%, as has been already largely telegraphed. The bulk of the attention, however, is expected to fall on the subsequent press conference by Chief Powell, where the Fed’s rate path and the timing of the start of the reduction of the Fed’s balance sheet are seen taking centre stage.

In the US cash markets, yields resume the upside, with the 2y note trading in levels last seen in December 2018 and the 10y benchmark note hovers around the key 3.00% yardstick.

Busy day in the US data sphere, as MBA Mortgage Applications are due in the first turn seconded by the ADP Report, Balance of Trade, Services PMI and the ISM Non-Manufacturing.

What to look for around USD

The dollar trades on a range bound fashion ahead of the FOMC event later on Wednesday. The Fed’s more aggressive rate path continues to be the main driver behind the robust bullish stance in the dollar, which also appears reinforced by the current elevated inflation narrative and the solid health of the labour market. Collaborating with the latter appear bouts of geopolitical tensions as well as the move higher in US yields.

Key events in the US this week: Mortgage Applications, ADP Report, Balance of Trade, Final Services PMI, ISM Non-Manufacturing, FOMC Meeting (Wednesday) – Initial Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is gaining 0.06% at 103.51 and the breakout of 103.92 (2022 high April 28) would open the door to 104.00 (round level) and finally 105.63 (high December 11 2002). On the other hand, the next support emerges at 102.81 (low April 29) seconded by 99.81 (weekly low April 21) and then 99.57 (weekly low April 14).

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