US Dollar Index loses the grip below 97.00, looks to data

• The index trades in session lows in the 96.90 region.
• FOMC opened the door to rate cuts in the next months.
• Philly Fed index, Initial Claims, Current Account next on tap.

The US Dollar Index (DXY), which gauges the greenback vs. a basket of its main competitors, is losing further ground and trades below the key support at 97.00 the figure.

US Dollar Index loses momentum post-FOMC

The index is navigating the area of multi-day lows in the sub-97.00 region ahead of the opening bell in Euroland amidst declining US yields, as market participants continue to digest Wednesday’s FOMC meeting.

Yesterday, the FOMC left unchanged the Feds Funds Target Range at 2.25%-2.50%, although it removed the ‘patient’ stance from the statement to describe the Fed’s view on monetary policy. Furthermore, there was a majority of members who favoured an interest rate cut this year and one member still advocating for a rate hike in 2019. At his press conference, Chief J.Powell noted that an accommodative stance appears to be gaining traction among members.

Despite rate cuts are now a palpable option - with the occurrence of such a move in July gaining some momentum – the case for a weaker greenback in the near-to-medium term looks less clear against the backdrop of the generalized twist to a looser stance from the Fed’s peers in the G-10 space and the so far outperformance of the US fundamentals vs. the majority of developed economies.

What to look for around USD

The Federal Reserve is not ‘patient’ anymore, and rate cuts have already emerged on the horizon (likely to be delivered at the September and/or December meeting), while an ‘insurance cut’ could come as early as July. Compared with other central banks, the Fed has more room to manoeuvre in case it goes ‘full accommodative’ in the next months (due to the hiking cycle that started in 2015). If we add that the US economy is healthier than its overseas peers, the greenback’s status of ‘global reserve currency’ and its safe haven appeal, further weakness in the buck is far from a done deal.

US Dollar Index relevant levels

At the moment, the pair is retreating 0.33% at 96.91 and 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). On the other hand, the next up barrier emerges 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).