On Wednesday, the greenback extended its multi-session consolidation in the 102.00 area using the USD Index (DXY).
Against the backdrop of the generalized range-bound theme in global markets and the FOMC's meeting on February 1, the index trades slightly on the defensive in the sub-102.00 area.
On the latter, and while a 25 bps interest rate increase is almost fully priced in, market participants are expected to closely follow the subsequent press conference by Chief Powell in order to detect any hints regarding the central bank's future actions. Particularly in light of the current opposing perspectives of investors – who continue to favor a pivot in Fed policy – and the persistently hawkish stance of policymakers.
MBA's Weekly Mortgage Applications report and the EIA's report on US crude oil stockpiles are the only US data points worth mentioning.
It seems that the dollar's price is still depressed in the lower end of its recent range in the region of the sub-102.00 area so far this week in terms of price action.
As the possibility of the Fed pivoting in policy continues to loom, the greenback is still weighing on the dollar, keeping the price action around the DXY sluggish. This view, however, comes in contrast to the hawkish message of the latest FOMC Minutes as well as recent comments from rate-setters, all pointing to the need to advance to a more restrictive stance and stay there for longer periods, as rates are expected to rise above the 5.0% mark in the near future.
It should also be noted that the tight labor market and the resilience of the economy are also considered as supporting the firm message of the Federal Reserve and its decision to continue its rate hike cycle.
The following events will take place this week in the United States: 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).
It is believed that a soft landing of the US economy will occur in the coming months. Prospects of additional rate hikes by the Federal Reserve versus speculation of a recession. The Fed's pivot. Geopolitical effervescence versus Russia and China. The trade dispute between the United States and China.
At 101.81, the index retreats 0.11% and faces resistance at 101.52 (2023 low January 18) followed 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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