February 8, 2023

Price action remains subdued near 102.00

  • The index keeps treading water around the 102.00 region.
  • Markets remain largely side-lined ahead of key events next week.
  • Weekly Mortgage Applications, EIA report only due later in the day.

The greenback, in terms of the USD Index (DXY), extends the multi-session consolidative mood around the 102.00 zone on Wednesday.

USD Index looks cautious ahead of FOMC

The index trades slightly on the defensive in the sub-102.00 zone against the backdrop of the generalized range bound theme in the global markets, all in light of the FOMC gathering due on February 1.

On the latter, and while a 25 bps interest rate raise is almost fully priced in, market participants are expected to closely follow the subsequent press conference by Chief Powell in search for any hint of the future moves by the central bank, particularly following the current opposite views from investors – who keep favouring a pivot in the Fed’s policy – and the persistent hawkish stance from policy makers.

Nothing to write home about in the US data space, as only the weekly Mortgage Applications tracked by MBA are only due seconded by the EIA’s report on US crude oil stockpiles.

What to look for around USD

The dollar’s price action remains depressed in the lower end of the recent range in the sub-102.00 region so far this week.

The idea of a probable pivot in the Fed’s policy continues to weigh on the greenback and keeps the price action around the DXY depressed. This view, however, also comes in contrast to the hawkish message from the latest FOMC Minutes and recent comments from rate setters, all pointing to the need to advance to a more restrictive stance and stay there for longer, at the time when rates are seen climbing above the 5.0% mark.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and the continuation of its hiking cycle.

Key events in the US this week: MBA Mortgage Applications (Wednesday) – Durable Goods Orders, Advanced Q4 GDP Growth Rate, Chicago Fed National Activity Index, Initial Jobless Claims, New Home Sales (Thursday) – PCE, Core PCE, Personal Income, Personal Spending, Pending Home Sales, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Prospects for extra rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index retreats 0.11% at 101.81 and faces the next support at 101.52 (2023 low January 18) seconded by 101.29 (monthly low May 30 2022) and finally 100.00 (psychological level). On the upside, a breakout of the weekly high at 102.89 (January 18) would pave the way for a test of 105.63 (monthly high January 6) and then 106.46 (200-day SMA).

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