The US Dollar Index (DXY) is 0.17% higher to start off an eventful week ahead, exhibiting cautious gains against its major peers as investors await the much-anticipated Federal Reserve (Fed) policy decision on Wednesday. The greenback’s upward trajectory since the start of the year remains intact; whispers of a potential hawkish tilt from the Fed are keeping bears in check for the time being.
Stronger-than-expected US economic data, including a robust Q4 GDP print of 3.3%, has poured cold water on aggressive rate cut expectations initially priced into the market. The December core PCE inflation, which dipped below 3% for the third consecutive month, further reinforces the notion of a resilient US economy.
Consequently, the CME FedWatch Tool now shows a 97.9% probability of an unchanged rate decision this week, with a mere 2.1% chance of a cut. This shift in sentiment has bolstered the Dollar, particularly against currencies like the Euro (EUR) and the Pound Sterling (GBP), which face their own economic headwinds.
Technical
On the 4-hour chart, the Dollar Index (DXY) currently hovers around 103.63, attempting to challenge the upper end of a recent horizontal trading range at 103.69. The price action trades comfortably above the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), indicating underlying bullish momentum.
The flat RSI hovering around 57.93 suggests potential price stability in the near term. Short-term trading opportunities could exist towards the resistance level at the 104.038 price level should the price action sustain a push above the 103.692 resistance level. A decisive break above this level could pave the way for further gains towards 104.282.
However, failure to breach the 103.69 resistance could trigger a pullback, leaving the short-term SMAs and the 23.60% Fibonacci retracement level (102.966) as potential support levels lower. A break below this level, particularly on significant volume, could open the door for a potential decline towards the 38.20% Fibonacci retracement level at 102.519 and the 50.00% level at 102.157.
Summary
The US Dollar is poised for a pivotal week as the Fed takes centre stage. While the technical picture suggests a potential upside towards 104, the market’s direction will ultimately hinge on the central bank’s pronouncements. A hawkish surprise could send the Dollar surging, while dovish reassurance could pave the way for further losses.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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