US Dollar Index depressed near 2020 lows ahead of FOMC

• DXY trades on the defensive in the 93.60 region on Wednesday.
• Trade Balance figures, Pending Home Sales next in the docket.
• All eyes will be on the FOMC event later in the NA session.

The greenback, when gauged by the US Dollar Index (DXY), has resumed the downside on Wednesday and is approaching the area of recent lows near 93.50.

US Dollar Index looks to the Fed

The index has quickly faded Tuesday’s advance as sellers remain well in control of both market and sentiment surrounding the buck.

Indeed, market chatter of extra stimulus, the unremitting advance of the coronavirus pandemic and the relentless recovery of the economy keep ruling the mood in the global markets and dictate the direction of the risk appetite trends.

Later on Wednesday, Pending Home Sales for the month of June are due seconded by advanced Trade Balance results, MBA’s Mortgage Applications and the weekly report on US crude oil supplies by the EIA.

However, the main event will be the interest rate decision by the Federal Reserve. Consensus among investors ruled out a move on the interest rate of the Fed Funds, favouring instead further discussion about the potential implementation of yield curve control (YCC) and extra measures to counteract the negative impact of the pandemic.

What to look for around USD

The dollar remains under heavy pressure as investors keep the bearish stance on the currency unchanged against the usual backdrop of US-China geopolitical jitters, the spread of the pandemic and efforts to return to a somewhat normal economic activity. Also weighing on the buck, market participants seem to have shifted their preference for other safe havens instead of the greenback on occasional bouts of risk aversion. On another front, the speculative community kept adding to the offered note around the dollar for yet another week, opening the door to a potential development of a more serious bearish trend in the dollar.

US Dollar Index relevant levels

At the moment, the index is losing 0.14% at 93.59 and faces the next support at 93.48 (2020 low Jul.27) seconded by 93.19 (monthly low June 2018) and then 91.80 (monthly low May 18). On the upside, a break above 94.20 (38.2% Fibo of the 2017-2018 drop) would open the door to 96.03 (50% Fibo of the 2017-2018 drop) and finally 97.11 (55-day SMA).