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US Dollar Poised Ahead of Fed as China Returns. Where to for USD?

US Dollar Poised Ahead of Fed as China Returns. Where to for USD?

Daniel McCarthy, Strategist

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US Dollar, DXY Index, USD, Fed, FOMC, China, CSI 300, Hang Seng - Talking Points

  • The US Dollar remains range bound as the Fed meeting looms
  • An impending tightening by the BoE and ECB also clouds expectations
  • China’s re-opening might provide a bright spot. Will that send the DXY index lower?
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The US Dollar continues to tread water to start the week ahead of the Federal Open Market Committee (FOMC) meeting on Wednesday.

The market is anticipating a 25 basis point (bp) lift in the target rate. Friday’s PCE inflation data suggests that a slowing in the pace of hikes might be appropriate.

A crucial aspect will be the post-decision press conference where Fed Chair Jerome Powell will be speaking in a question-and-answer session. US Treasury Secretary Janet Yellen highlighted recession risks last Friday.

It is a big week ahead for central banks with the Bank of England (BoE) and the European Central Bank (ECB) also delivering a verdict for their respective rate paths on Thursday. A Bloomberg survey of economists forecasts a 50 bp hike from both banks.

Mainland Chinese markets re-opened today after a week off to celebrate the Lunar New Year. The CSI 300 equity index opened over 2% higher but then eased lower throughout the day. Hong Kong’s Hang Seng Index (HSI) went deep in the red, down over 1.6% at one stage.

Korea’s Kospi index was also notably lower while Australian and Japanese indices were little changed. Futures markets are pointing to a benign start to the Wall Street cash session later.

Currency markets have had a quiet start to the week while crude oil continues to languish after Friday’s sell-off. OPEC+ will be meeting on Wednesday to discuss production targets where most of the market is not anticipating a change.

Likewise, gold has been subdued so far, trading near US$ 1,930 at the time of going to print.

After the German GDP number today, the US will see the latest read of the Dallas Fed’s manufacturing activity index.

The full economic calendar can be viewed here.

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DXY (USD) INDEX TECHNICAL ANALYSIS

The DXY index continues to moulder near the 10-month low. This month’s low of 101.50 and the May 2020 low of 101.30 might provide support. The price has been in the 101.50 – 103.49 range for 3-weeks.

On the topside, resistance could be at the breakpoint of 103.42 or the prior peaks of 103.49, 105.63, 105.82, 107.20 and 108.00.

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Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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