US Dollar Index loses the grip and retests 90.40 ahead of data

DXY loses momentum and recedes to the 90.40 area.
Markets’ attention remains on the FOMC event on Wednesday.
Busy US calendar with Retail Sales taking centre stage.

Pablo Piovano FXStreet

The greenback, when measured by the US Dollar Index (DXY), adds to the small loses seen at the begging of the week and now slips back to the 90.40/35 band on turnaround Tuesday.

US Dollar Index focuses on data, FOMC

Following Monday’s inconclusive session, the index drifts further south on Tuesday amidst steady US yields and increasing vigilant stance ahead of the key FOMC event later in the week.

On the latter, consensus expects the Federal Reserve to stick to its dovish message on inflation and despite the latest higher-than-forecast CPI, although the Committee could deliver a more upbeat tone regarding the economic recovery and growth prospects.

Later in the NA session, May’s Retail Sales will be the salient data release seconded by Producer Prices, the NY Empire State regional manufacturing gauge, Industrial/Manufacturing Production, Business Inventories, the NAHB index, TIC Flows and the weekly API’s report on crude oil supplies.

What to look for around USD

The index so far survives above the 90.00 neighbourhood, which has emerged as a tough barrier for dollar bears. Higher inflation figures in May failed to ignite a serious bullish attempt in the buck while they also forced yields to recede to multi-month lows well below 1.50%. The outlook for the currency still remains on the negative side and this view is supported by the perseverant mega-dovish stance from the Federal Reserve (until “substantial further progress” in inflation and employment is made) in place for the time being and rising optimism on a strong global economic recovery, which is seen underpinning the risk complex.

Key events in the US this week: Retail Sales, Producer Prices, Industrial Production (Tuesday) – Housing Starts, Building Permits, FOMC event (Wednesday) – Initial Claims, Philly Fed Index (Thursday).

Eminent issues on the back boiler: Biden’s plans to support infrastructure and families, worth nearly $6 trillion. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating?

US Dollar Index relevant levels

Now, the index is losing 0.15% at 90.36 and faces the next support at 89.53 (monthly low May 25) followed by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018). On the other hand, a breakout of 90.62 (weekly high Jun.4) would open the door to 90.90 (weekly high May 13) and finally 91.05 (100-day SMA).

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

AUD/USD hangs close to monthly lows, still defends 0.7100 ahead of Fed decision

AUD/USD retains its negative bias for the third straight day, defending 0.7100 while trading close to a monthly low in Wednesday's Asian session on Wednesday. The US Dollar stands firm near a two-week high as the anticipated Fed rate hike and oil-driven inflation fears continue to push US bond yields to a multi-year high. Furthermore, escalating Middle East tensions benefit the safe-haven buck and weigh on the risk-sensitive Aussie.

USD/JPY holds firm above 155.00, awaits Fed policy announcements

USD/JPY climbs to a fresh one-week high above 155.00 in the Asian session on Wednesday amid a bullish US Dollar. Oil-driven inflation fears, along with the anticipated Fed rate hike, continue to support surging US bond yields. Moreover, rising US-Iran tensions underpin the USD's reserve currency status. The pair, however, remains below the mid-155.00s as bulls seem hesitant ahead of the Fed decision later today and the BoJ meeting, starting on Thursday.

Gold traders seem noncommittal below $4,350; eyes Fed rate decision

Gold clings to modest intraday gains through the first half of the European session, albeit it lacks follow-through buying and remains below $4,350. The US Dollar eases from a two-week high amid some profit-taking, offering support to the commodity. Traders, however, seem hesitant to place aggressive directional bets and opt to wait on the sidelines heading into the key central bank event risk.

Cardano's bearish breakout warns of a 15% downside risk

Cardano (ADA) hovers around $0.1900 at press time on Wednesday after a 6% decline the previous day, breaking below a crucial support level. Declining on-chain activity across the Cardano ecosystem, with reduced transaction count and Real Economic Value (REV), suggests waning user demand.

Fed decision in focus

Starting with the most important, the Fed decision. Heading into the event, data showed a rather punchy US August jobs report, which, you will likely recall, triggered a hawkish Fed rate repricing in rates markets. However, the recent US August CPI print mattered more.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.