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  • Greenback gathers strength ahead of FOMC announcements.
  • Fed is widely expected to rate the policy rate by 25 bps.

The US Dollar Index, which tracks the greenback against a basket of six major currencies, extended its daily upside to a fresh session top at 94.40 in the last hour as investors are gearing up for the FOMC’s monetary policy announcements. At the moment, the index is up 0.22% on the day at 94.35.

Although there are no apparent fundamental drivers that could be ramping up the demand for the buck, the dismal performance of European  currencies, especially the euro and the CHF, seems to be providing a boost to the DXY.  

It won’t be a surprise if the Fed announces a 25 bps hike to its fund rate as this decision is already clearly communicated by FOMC members in the last few weeks. Furthermore, the latest inflation and employment data also were good enough to keep the Fed on its tightening path. However, the updated dot plot and economic projections, as well as Chairman Powell’s comments, will be looked upon for fresh clues regarding the central bank’s policy outlook for 2019.

“We expect the Committee’s median rate forecast for 2021 to remain at 3.375%, unchanged from the median forecast for 2020. While we do not expect many participants to revise their longer-run policy rate forecast, we expect the median longer-run forecast to rise to 3.0% for a technical reason,” Nomura analysts noted in a recently published report.

Technical levels to consider

The initial resistance for the index could be seen at 94.55 (Sep. 20 high) ahead of 95 (psychological level/50-DMA) and 95.75 (Sep. 4 high). On the downside, supports could be seen at 94 (psychological level/Sep. 25 low), 93.70 (Jul. 9 low) and 93.20 (Jun. 14 low).