US Dollar Index looks bid around 96.00 ahead of FOMC event

The greenback, when tracked by the US Dollar Index (DXY), extends the weekly recovery above 96.00 amidst the mixed tone in US yields and alternating risk appetite trends.

US Dollar Index remains focused on the Fed

The index trades with gains for the third session in a row on Wednesday, although the ongoing bullish stance in the dollar seems to have me a solid hurdle near 96.30, or weekly highs (January 25).

The positive momentum in the dollar comes amidst mixed performance of yields in the US cash markets, where the short end looks to extend the rebound vs. some consolidative mood seen in the belly and the long end of the curve.

The index, in the meantime, is expected to move within a range bound theme in light of the key FOMC meeting due later in the NA session. Despite a move on rates by the Fed is largely ruled out, investors expect the Committee to deliver a hawkish message and signal the start of the normalization phase as soon as at the March event. In addition, market participants will closely follow any mention regarding the balance sheet runoff.

In the US docket and other than the FOMC meeting, MBA will release its weekly report on Mortgage Applications seconded by advanced Goods Trade Balance and December New Home Sales.

What to look for around USD

The index started the week on a positive note and reclaimed the 96.00 barrier and above so far this week. In spite of consensus already pricing in a probable move on rates by the Fed at the March event, the constructive outlook for the greenback is expected to remain unchanged into this week and ahead of the FOMC event later in the session. 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: 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 96.03 and a break above 96.27 (weekly high Jan.25) 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 95.41 (low Jan.20) followed by 94.92 (100-day SMA) and then 94.62 (2022 low Jan.14).