USD Index: Lower close on the day to confirm a bearish technical reversal, capping recent gains – Scotiabank

USD eases back as markets await the Fed decision and messaging on the outlook. Shaun Osborne, Chief FX Strategist at Scotiabank, analyzes Greenback’s outlook.

USD is susceptible to market focus on the peak in tightening cycle

I think the USD is susceptible to market focus on the peak in tightening cycle. Markets are currently pricing in around 11-12 bps of additional tightening later this year. Whether the probability of more hikes strengthens or weakens from around 50% after today’s decision will likely dictate how the USD performs in the near-term. 

Technical pointers are tilting USD-negative in broad terms after the DXY peaked in the upper 101 area on Tuesday, filling a small gap on the chart and closing net lower on the day; a lower close for the DXY today would ‘confirm’ a bearish technical reversal, capping recent gains.