US Dollar Index struggles for direction below 94.00

The greenback, in terms of the US Dollar Index (DXY), reverses the negative start of the month and hovers around the 93.90 region on Tuesday.

US Dollar Index cautious ahead of FOMC event

The index navigates slightly within the positive territory on Tuesday amidst declining US yields and generalized lack of direction in the risk appetite trends.

Indeed, US cash markets see yields in the front end and the belly of the curve extending the recent decline to the 0.48% region and the 1.55% area, respectively; while the long end adds to the recent gains and approaches 1.97%.

The dollar, in the meantime, is expected to trade in a context of rising cautiousness ahead of the key FOMC event later in the week. Indeed, consensus sees the Committee announcing the start of the tapering process as soon as in November and at a likely pace of $15B per month.

Later in the US data space, the IBD/TIPP Economic Optimism Index is due seconded by the weekly report on US crude oil supplies by the API.

What to look for around USD

Friday’s surge in the dollar catapulted the index back above the key barrier at 94.00 the figure, although Tuesday’s selling bias saw part of that move eroded. Moving forward, the upcoming FOMC event will likely dictate the price action around the buck in the very near term at least amidst firm expectations of an announcement regarding the start of the QE tapering process. Furthermore, the price action surrounding the greenback is seen closely tracking US yields and the progress of the current elevated inflation as well as views from Fed’s rate-setters regarding the probability that high prices could linger for longer, all along the performance of the economic recovery against the backdrop of unabated supply disruptions and the equally incessant raise in coronavirus cases.

Key events in the US this week: Factory Orders, ISM Non-Manufacturing, ADP Report, FOMC meeting (Wednesday) – Balance of Trade, Initial Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Discussions around Biden’s multi-billion Build Back Better plan. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is gaining 0.05% at 93.92 and a break above 94.30 (weekly high Oct.29) would open the door to 94.56 (2021 high Oct.12) and then 94.74 (monthly high Sep.24 2020). On the flip side, the next down barrier emerges at 93.27 (monthly low October 28) followed by 92.98 (weekly low Sep.23) and finally 92.93 (100-day SMA).