Search ForexCrunch
  • DXY plunged to sub-97.00 levels on Tuesday, fresh 2-month lows.
  • The Federal Reserve cut the FFTR by 5- bps to 1.00%-1.25%.
  • ADP employment report, ISM Non-Manufacturing, Beige Book due later.

After recording fresh 2-month lows in the sub-97.00 zone on Tuesday, the greenback has regained some poise and managed to retake the 97.00 level when tracked by the US Dollar Index (DXY).

US Dollar Index focused on data, coronavirus

Two weeks. That’s all what it took to the index to fully retrace the February rally. Indeed, DXY came all the way down from tops in levels just shy of the triple-digit barrier (February 20th) to Tuesday’s 2-month lows in the proximity of 96.90.

The sharp sell off was on the back of the increasing perception (eventually materialized) that the Fed could step in and cut rates in order to mitigate the potential negative effects of the Chinese coronavirus on the US economy. The decision, indeed, came in on Tuesday and the Fed reduced the FFTR to 1.00%-1.25% in what was the first move on rates in-between meetings since the global financial crisis back in 2008.

In the aftermath of the decision, yields of the 10-year reference dropped below 1.0% for the first time ever, stocks recovered (just to drop further afterwards), the VIX index (a.k.a “the panic index”) surpassed 41.0 and the dollar lost ground vs. its main competitors.

While markets are slowly returning to normalcy on Wednesday, the focus of attention data-wise will be on the ADP report and the ISM Non-Manufacturing seconded by Markit’s gauge of the services sector. In addition, the Fed will release its Beige Book and the EIA will report on the weekly US crude oil inventories.

What to look for around USD

The index has accelerated the downside to the sub-97.00 area on Tuesday, recording at the same time fresh multi-week lows. Following the breach of the 200-day SMA (today at 97.82), the outlook on the dollar has now shifted to bearish and further pullbacks should not be ruled out. In the meantime, investors’ attention is now on the upcoming FOMC meeting (March 17-18) and the probability of extra easing after Tuesday’s exceptional 50 bps interest rate cut.

US Dollar Index relevant levels

At the moment, the index is gaining 0.12% at 97.27 and a breakout of 97.82 (200-day SMA) would aim for 98.54 (monthly high Nov.29 2019) and finally 99.09 (23.6% Fibo retracement of the 2020 rally). On the downside, the next support emerges at 96.98 (weekly/monthly low Mar.2) seconded by 96.74 (low Dec.12 2019) and then 96.53 (monthly low Dec.31 2019).