DXY Index Coiling Ahead of FOMC Meeting Tomorrow
- British Pound backs off gains after weaker than expected CPI in February, but a hike by the BOE in May is still anticipated.
- Sentiment for the US Dollar remains mixed as the calendar turns through the ides of March.
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After what proved to be a volatile January and February, March has been anything but, for the US Dollar. Since the DXY Index set the daily bearish key reversal on March 1, price action has been contained between 89.43 and 90.38 over the past nearly three weeks.
Now that we're within the eye of the storm - the FOMC meeting in Washington, D.C. begins today and concludes with newly-minted Fed Chair Jerome Powell's press conference tomorrow afternoon at 14 EDT/18 GMT - we're not expecting the DXY Index to shake off its coiling range just yet.
In particular, given the light economic calendar for the United States between now and the FOMC press conference tomorrow, it would stand to reason that the news wire is the most potent source of event risk for FX markets. Indeed, with the grace period for the Trump administration's alumninum and steel tariffs set to end this coming Friday, the rhetoric around a potential global trade war seems poised to escalate rather than de-escalate.
With a backdrop as such, USD/JPY seems poised to remain in its downtrend below its daily 21-EMA. EUR/USD should remain relatively rangebound between the daily key reversals established on February 16 and March 1. GBP/USD should continue to work its way out of the bullish pennant as, despite the miss in the February CPI report today, market participants still feel strongly that a 25-bps rate hike by the Bank of England is coming by May.
Concurrently, the DXY Index still needs to conquer 91.01, the 2017 low that has capped price action ever since its break on January 12 (failed morning doji star candle cluster on January 15 to 17 and a bearish key reversal on March 1) before a bottom can be called across the USD-spectrum.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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