US Dollar Index bounces off lows near 97.30 ahead of ISM, FOMC

The greenback, in terms of the US Dollar Index (DXY), has managed to regain some composure following the upbeat result from the US ADP report.

US Dollar Index now looks to ISM, Fed

The index appears to have found some dip-buyers in the area of session lows after the ADP report showed that the US private sector added 275K jobs during April, not only surpassing estimates but also coming in higher than March’s 151K (revised from 129K).

In the meantime, DXY continues to lose ground since last Friday amidst a sharp improvement in the mood surrounding the riskier assets, although the selling impetus seems to have met some contention in the 97.30 region, where sits the key 21-day SMA.

Later in the session, the buck is expected to remain in centre stage, as the ISM will release its monthly gauge of the manufacturing sector seconded by the FOMC interest rate decision and the press conference by Chief Jerome Powell. While a move on rates has been already priced out, Powell’s presser is expected to face a lot of questioning regarding the likeliness of rate cuts in the medium term.

What to look for around USD

The greenback remains under a renewed downside pressure following some mixed results in the docket and after reaching fresh 2019 highs in the 98.30 region during last week. Concerns over the lack of traction in inflation has poured cold water over the recent optimism and has emerged as a key driver to follow by market participants in the next months. Focus has now shifted to the imminent FOMC meeting, where the neutral/data-dependent stance from the Fed is expected to persist while a rate hike this year is not entirely off the table yet. On the positive side for the buck we find overseas weakness, its safe haven appeal, favourable yield spreads vs. its peers and the status of global reserve currency. Despite further progress in the US-China trade talks carries the potential to somewhat undermine the positive outlook on USD in the near term, rising scepticism among investors should mitigate bouts of optimism surrounding this event.

US Dollar Index relevant levels

At the moment, the pair is retreating 0.09% at 97.43 and a breach of 97.34 (low May 1) would aim for 97.26 (low Apr.22) and then 96.96 (55-day SMA). On the other hand, the next up barrier emerges at 98.32 (2019 high Apr.25) seconded by 99.89 (high May 11 2017) and then 100.51 (78.6% Fibo of the 2017-2018 drop).