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  • DXY trades on the defensive near the 98.00 mark on Monday.
  • The Fed reduced the FFTR by 100 bps to 0.0%-0.25%.
  • Housing data, Retail Sales, Industrial Production next of relevance.

The greenback, when tracked by the US Dollar Index (DXY), has started the week on the back footing and it has retreated to the 98.20 region following another interest rate cut the Fed.

US Dollar Index weaker on Fed, looks to data, COVID-19

Following four consecutive daily advances, the index appears to have met strong resistance in the 98.70/75 band in the wake of the sudden interest rate cut by the Federal Reserve on Sunday.

In fact, the Fed reduced the Fed Funds Target Range (FFTR) by a full percentage point to 0.0%-0.25% and announced the return of the ‘quantitative easing’ (QE) in a move to keep the liquidity flowing and encourage extra lending by banks. However, investors remain cautious and sceptical regarding the extension of these measures to households and the corporate sector.

Moving forward, the Fed cancelled its meeting on March 17-18, leaving the attention to key economic data releases to be out later in the week: advanced Retail Sales, housing data, Industrial Production figures and the Philly Fed manufacturing gauge.

What to look for around USD

DXY staged a strong recovery from last week’s lows in the 94.60 region, although it met solid resistance in the vicinity of 98.90 so far. Markets’ focus remains on the developments from the COVID-19 and its impact on the global economy amidst (now) looser monetary policy conditions. In the meantime, market participants continue to adjust to the recent measures by the Federal Reserve, while the outlook on the dollar stays constructive after regaining the area above the 200-day SMA. This outlook is also reinforced by the “good shape” of the domestic economy, the buck’s safe haven appeal and its status of “global reserve currency” and store of value.

US Dollar Index relevant levels

At the moment, the index is retreating 0.57% at 98.13 and faces the next support at 97.65 (low Mar.16) seconded by 97.26 (50% Fibo of the 2017-2018 drop) and then 96.36 (monthly low Dec.31 2019). On the upside, a breakout of 98.81 (weekly high Mar.13) would open the door to 98.93 (high Aug.1 2019) and finally 99.37 (high Sep.3 2019).

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