Search ForexCrunch
  • DXY drops to fresh lows in the 97.80 region on Monday.
  • Speculations of a Fed’s rate cut have picked up extra pace.
  • ISM Manufacturing will be the salient event later today.

The greenback, in terms of the US Dollar Index (DXY), has started the week well into the defensive territory and tested new lows in the vicinity of 97.80, where sits the critical 200-day SMA.

US Dollar Index weaker on Fed cuts, looks to data

The index is navigating the area of 4-week lows in sub-98.00 levels at the beginning of the week, as market participants continue to adjust to the potential rate cut by the Federal Reserve (even before the meeting) on March 17-18.

Indeed, Chief Powell said on Friday that the Chinese coronavirus “poses evolving risks to economic activity” and added that the Fed stays ready to act as “appropriate to support the economy”.

In the meantime, fears around the COVID-19 remain unabated, although the risk complex looks supported by the increasing likeliness of further easing by major central banks in order to diminish the (potential) impact to the economic outlook.

Later in the NA session, the always-relevant ISM Manufacturing will be the most salient event seconded by Markit’s final manufacturing gauge for the month of February and January’s Construction Spending figures.

What to look for around USD

The index has intensified the downside on the back of the probability of extra easing by the Fed in the very near-term. So far, the dollar appears supported by the 200-day SMA in the 97.80/85 band, although further decline is now not ruled out. That said, and despite the outlook on the buck now looks compromised, its stance still appears constructive and propped up by the “good shape” of the domestic economy, the buck’s safe haven appeal and its status of “global reserve currency”.

US Dollar Index relevant levels

At the moment, the index is retreating 0.14% at 97.98 and faces the next support at 97.85 (weekly low Mar.2) seconded by 97.83 (200-day SMA) and then 97.75 (61.8% Fibo retracement of the 2020 rally). On the flip side, a breakout of 98.54 (monthly high Nov.29 2019) would open the door to 99.09 (23.6% Fibo retracement of the 2020 rally) and finally 99.91 (2020 high Feb.20).