USD Index adds to recent losses below 102.00 on FOMC day

• The index loses further ground and retests 101.70.
• The Fed is largely anticipated to hike rates by 25 bps.
• ADP report, ISM Services PMI next of note in the docket.

The USD Index (DXY), which tracks the Greenback vs. a bundle of its main rivals, adds to Tuesday’s losses and extends the recent breach of the 102.00 support on Wednesday.

USD Index now looks at FOMC, data

The index retreats for the second session in a row and extends Tuesday’s rejection from multi-day highs around 102.40 on the back of the improved sentiment in the risk complex and steady cautiousness among investors ahead of the FOMC event.

On the latter, the Federal Reserve is broadly expected to raise the Fed Funds Target Range (FFTR) by 25 bps to 5.00%-5.-25%. The focus of attention, however, has shifted to the usual press conference by Chief Powell, where the future moves regarding the rate path will take centre stage.

Other than the FOMC gathering, the US docket will show weekly Mortgage Applications by MBA, the monthly ADP Employment Change, the final Services PMI tracked by S&P Global and the ISM Services PMI.

What to look for around USD

The index corrects lower from recent tops around 102.40 ahead of the key FOMC meeting due later in the NA session.

Looking at the broader picture, the index continues to navigate in a consolidative phase against steady expectations of another rate increase in May by the Fed and rising cautiousness in light of the potential next decisions by the Fed in the next months.

In favour of a pause in the Fed’s hiking cycle following the May event appears the persevering disinflation and nascent weakness in some key fundamentals, which at the same time feeds the spectre of a probable recession.

Key events in the US this week: MBA Mortgage Applications, ADP Employment Change, Final Services PMI, ISM Services PMI, FOMC Meeting, Powell press conference (Wednesday) – Balance of Trade, Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change.

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is losing 0.20% at 101.72 and faces immediate support at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level). On the other hand, a break above 102.80 (weekly high April 10) would open the door to 103.05 (monthly high April 3) and then 103.13 (100-day SMA).