US Dollar Index looks bid and flirts with the 96.00 area

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, keeps the upbeat tone and challenges the 96.00 region on turnaround Tuesday.

US Dollar Index cautious ahead of FOMC

The index advances for the second session in a row and extends the optimism in the first half of the week against the backdrop of rising cautiousness among investors in light of the upcoming FOMC event (Wednesday).

In the US cash markets, yields of the 2y note manage to get some upside traction an reverse the recent weakness, while the belly and the long end of the curve remain on the defensive ahead of the opening bell in the old continent.

in the meantime, the 2-day FOMC meeting is expected to kick in later on Tuesday, with consensus among market participants biased towards a hawkish tilt at the event.

In the US data space, the housing sector will be in the limelight with the releases of the FHFA House Price Index and the S&P/Case-Shiller Index seconded by the always relevant Consumer Confidence tracked by the Conference Board.

What to look for around USD

The index started the week on a positive note and reclaimed the 96.00 neighbourhood so far this week. In spite of consensus already priced in a probable move on rates by the Fed at the March meeting, the constructive outlook for the greenback is expected to remain unchanged into this week and ahead of the FOMC event on Wednesday. Looking at the broader scenario, higher US yields, persistent elevated inflation, supportive Fedspeak and the solid pace of the US economic recovery should continue to underpin the buck in the months to come.

Key events in the US this week: House Price Index, CB Consumer Confidence (Tuesday) – Trade Balance, New Home Sales, FOMC Meeting, Powell’s Press Conference (Wednesday) – Durable Goods Orders, Advanced Q4 GDP, Initial Claims, Pending Home Sales (Thursday) – PCE, Personal Income/Spending, Final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Fed’s rate path this year. US-China trade conflict under the Biden administration. Debt ceiling issue. Escalating geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is gaining 0.08% at 95.94 and a break above 96.12 (weekly high Jan.24) would open the door to 96.46 (2022 high Jan.4) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 94.89 (100-day SMA) followed by 94.62 (2022 low Jan.14) and then 93.27 (monthly low Oct.28 2021).