US Dollar Index clings to gains near 97.70, FOMC on sight

  • The index extends the weekly up move near 97.70.
  • US 10-year yields rebound from sub-2.02% levels.
  • FOMC meeting will be the salient event later today.

The greenback is prolonging its relentless up move this week, trading near 2-week highs in the 97.70 region when gauged by the US Dollar Index (DXY).

US Dollar Index focused on the Fed

The index is posting gains since last Wednesday, managing to extend the rebound from lows in the 96.50 region, where sits the key 200-day SMA and a multi-month support line.

DXY gained extra oxygen on Tuesday after President Draghi delivered a dovish message at the ECB Forum in Sintra (Portugal), stressing that the central bank is ready to cut interest rates and restore the asset purchases in order to push inflation closer to the bank’s 2% target.

On the US-China trade front, President Trump said he will meet his Chinese peer Xi Jingpin at the G-20 meeting in Japan next week following a ‘constructive’ telephone call on Tuesday.

Today’s main event will be the FOMC meeting, where all the attention is expected to gyrate around any mention of probable rate cuts in light of the negative impacts of the trade war on the US economy, the lack of upside pressure in consumer prices and the forecasted recession at some point during next year.

What to look for around USD

Markets participants will closely follow today’s FOMC meeting, where the new ‘dots plot’ is expected to show no rate hikes this year and the next one. The subsequent press conference by Chief J.Powell is also predicted to reinforce the dovish message at the event, emphasizing the goal of ‘sustaining expansion’. However, and in spite of some disappointing results in US fundamentals as of late, the labour market remains strong, wage growth keep pushing higher and the overall economy looks healthy - specially when we consider the weakness in overseas economies – all begging the question whether current speculations of rate cuts are not somewhat overdone.

US Dollar Index relevant levels

At the moment, the pair is gaining 0.02% at 97.66 and faces the next up barrier at 97.80 (monthly high Jun.3) seconded by 97.87 (61.8% Fibo of the 2017-2018 drop) and finally 98.37 (2019 high May 27). On the downside, a breach of 96.46 (low Jun.7) would open the door for 96.04 (50% Fibo of the 2017-2018 drop) and then 95.82 (low Feb.28).

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