US dollar moves into consolidation ahead of Fed, bulls on standby

The US dollar retreated from a two-week peak on Tuesday as investors set aside the tensions between Russia and the West over Ukraine and instead focussed on today's Federal Reserve policy meeting. The DXY, an index that measures the greenback vs. a basket of currencies, has fallen to test the bullish commitments near 96 the figure where it is stabilising in Asia. 

The markets have priced in a March hike for some time and this left the greenback vulnerable to a long squeeze into today's revealing of policy decisions in the last week of the month. Additionally, there was a focus on today's 5-year Treasury auction.

The bid-to-cover ratio was high and so too was the yield with the US selling 5-year notes at 1.533% vs WI 1.547% on a $55 billion sale. That was the highest yield since October 2019. The prior was 1.263% and the bid to cover at 2.50 vs 2.41 prior. This indicates that the market could be pricing the Fed too hawkish for the medium term which has dented the US dollar before today's big event. 

Meanwhile, on the geopolitical front, Russia said it was watching with great concern after the US sent 8,500 troops on alert to deploy to Europe. This is a theme that is expected to keep the greenback underpinned and the euro on the back foot. 

DXY technical analysis

The M-formation is a reversion pattern and the price would be expected to correct higher following the slide from the daily highs.