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  • The index struggles for direction in the mid-97.00s.
  • Yields of the US 10-year note find support near 2.5%.
  • FOMC, ADP report, ISM manufacturing next of relevance.

The greenback is trading on a cautious note in the middle of the week, hovering over the 97.50 region when measured by the US Dollar Index (DXY).

US Dollar Index looks to data, FOMC

The index alternates gains with losses on Wednesday following yesterday’s sharp sell off to the 97.50 region and is looking to reverse at the same time three consecutive daily pullbacks.

The better note in the risk-associated space plus optimistic readings from the docket in Euroland have also collaborated with the downside in the buck in past sessions, accelerating the decline from yearly peaks in the 98.30/35 band.

In the data sphere, April’s ADP report is next on tap seconded by the always-critical ISM manufacturing and the FOMC meeting. Regarding the latter, market consensus ruled out any move on rates by the Federal Reserve, while the centre of the debate should remain around the performance of the inflation.

What to look for around USD

The greenback remains under a renewed downside pressure following some mixed results in the docket and after reaching fresh 2019 highs in the 98.30 region during last week. Concerns over the lack of traction in inflation has poured cold water over the recent optimism and has emerged as a key driver to follow by market participants in the next months. Focus has now shifted to the imminent FOMC meeting, where the neutral/data-dependent stance from the Fed is expected to persist while a rate hike this year is not entirely off the table yet. On the positive side for the buck we find overseas weakness, its safe haven appeal, favourable yield spreads vs. its peers and the status of global reserve currency. Despite further progress in the US-China trade talks carries the potential to somewhat undermine the positive outlook on USD in the near term, rising scepticism among investors should mitigate bouts of optimism surrounding this event.

US Dollar Index relevant levels

At the moment, the pair is retreating 0.02% at 97.51 and a breach of 97.44 (low Apr.30) would aim for 97.36 (21-day SMA) and finally 97.26 (low Apr.22). On the other hand, the next up barrier emerges at 98.32 (2019 high Apr.25) seconded by 99.89 (high May 11 2017) and then 100.51 (78.6% Fibo of the 2017-2018 drop).