- The index starts the new week slightly on the defensive.
- The Fed is expected to raise rates by 25 bps later in the week.
- Short-term Bill Auctions will be the only releases in the docket.
The greenback, in terms of the USD Index (DXY), struggles for direction around the 103.80 at the beginning of the week.
USD Index cautious ahead of Fed
The index keeps the bearish note for the third session in a row on Monday, all against the backdrop of the generalized side-lined trade in the global markets as well as further downside in US yields across the curve.
In the meantime, markets are expected to maintain the prudence, and thus the consolidative mood, ahead of the FOMC event on March 22, when the Fed is expected to hike the Fed Funds Target Range by 25 bps.
On the latter, CME Group’s FedWatch Tool currently sees the probability of that scenario around 56%.
In the docket, the only release of note will be a 3-month/6-month Bill Auctions later in the NA session.
What to look for around USD
The index remains under pressure and keeps the trade in the sub-104.00 region amidst a broad-based range bound theme in the rest of the markets.
The risk aversion derived from banking jitters appears diminished and supports the selling bias in the dollar amidst firmer conviction among investors of a 25 bps rate hike by the Federal Reserve at the next meeting on March 22.
So far, reinvigorated bets of a Fed’s pivot in the short-term horizon could keep the price action around the dollar somewhat depressed. However, the still elevated inflation and the resilience of the US economy should continue to play against that view.
Key events in the US this week: Existing Home Sales (Tuesday) – MBA Mortgage Applications, FOMC Interest Rate Decision, Powell press conference (Wednesday) – Initial Jobless Claims, Chicago Fed National Activity Index, New Home Sales (Thursday) – Durable Goods Orders, Advanced PMIs (Friday).
Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Persistent narrative for a Fed’s tighter-for-longer stance. Terminal rates near 5.5%? Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.
USD Index relevant levels
Now, the index is retreating 0.03% at 103.83 and the breakdown of 103.48 (monthly low March 13) would open the door to 102.58 (weekly low February 14) and finally 100.82 (2023 low February 2). On the other hand, the next hurdle emerges at 105.88 (2023 high March 8) seconded by 106.64 (200-day SMA) and then 107.19 (weekly high November 30 2022).
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