US Dollar Index returns to the 96.40 region ahead of FOMC

• The index fades the initial spike to the 96.50/55 band.
• US 10-year yields tumble to lows near 2.59%.
• Fed’s ‘dots plot’ will be in centre stage later in the day.

After testing fresh highs in the 96.50/55 band earlier in the day, the US Dollar Index (DXY) has now retreated to the 96.40 region, albeit still positive for the day.

US Dollar Index looks to Fed

The renewed bearish sentiment around the buck is so far preventing the index to gather a more serious bullish impulse, leaving exposed the area of recent lows near 96.30.

Later in the session, the greenback will be in centre stage in light of the FOMC event. Consensus among investors has already ruled out a move on rates by the Federal Reserve, although the focus of attention will be on the balance sheet reduction and the revised ‘dots plot’.

Looking at the broader scenario, the mood around the risk-appetite trends should continue to be the main driver for the price action in USD amidst the absence of further progress in the US-China trade talks.

What to look for around USD

The optimism around a positive outcome in the US-China trade front faded somewhat in past days, although investors seem hopeful of a final agreement at the end of the day. On another front, US inflation seems to be losing some traction while activity remains strong, adding to the ongoing debate on whether the Fed should re-assess its next steps of its monetary policy, particularly regarding rate hikes. The occasional resumption of the upside in the buck, however, carries the potential to spark fresh bouts of criticism from President Trump to both the Fed’s policy and the level of the currency.

US Dollar Index relevant levels

At the moment, the pair is advancing 0.06% at 96.47 facing the next hurdle at 96.63 (21-day SMA) seconded by 96.80 (10-day SMA) and finally 97.71 (2019 high Mar.7). On the flip side, a break below 96.29 (low Mar.19) followed by 95.89 (200-week SMA) and then 95.82 (low Feb.28).