USD Index regains the smile near 103.50, Fed’s meeting kicks in

The greenback, in terms of the USD Index (DXY), manages to regain some tepid upside traction and rebounds from Monday’s lows in the 103.30/25 band.

USD Index focuses on the FOMC event

The index so far reverses three consecutive daily pullbacks, including Monday’s drop to multi-week lows around 103.30, amidst some mild selling pressure in the risk complex and the flat performance in US yields across the curve.

In the meantime, and according to CME Group’s FedWatch Tool, the probability of a 25 bps rate hike by the Fed on Wednesday hovers around the 80%, although investors are expected to closely follow any suggestion by the Committee that the Fed could pause its tightening cycle in the relatively near term.

The above appears somehow justified by the loss of momentum in some US fundamentals as of late and the persistent disinflation witnessed since July 2022.

Data wise in the US, the only release of note will come from the Existing Home Sales for the month of February.

What to look for around USD

The index remains under pressure and keeps the trade well 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 advancing 0.13% at 103.44 and faces the next resistance at 105.88 (2023 high March 8) seconded by 106.62 (200-day SMA) and then 107.19 (weekly high November 30 2022). On the other hand, the breach of 103.27 (monthly low March 20) would open the door to 102.58 (weekly low February 14) and finally 100.82 (2023 low February 2).