On July 28, the US Dollar Index (DXY) consolidated the weekly losses below the 93.00 mark. The Greenback gauge has been justifying the cautious market sentiment on the day ahead of crucial Fed meetings and interest rate decisions.
- The DXY Dollar Index is consolidating weekly losses ahead of Fed.
- The market sentiment is cautious primarily before the Fed’s verdict.
- Global stocks have observed a decline along with the US bonds yields.
DXY Dollar Index fundamental analysis: risk mood and Fed holding weight
The US Dollar could not hold gains despite the poor risk sentiment. The global stock market has seen a decline, while the demand for government-issued bonds has seen a rise. As a result, we see a decline in bond yields. Market players are cautiously waiting for the Fed’s decision and statement before placing any further bets on the Greenback.
Wall Street
Wall Street could not hold into the positive zone and followed its overseas counterparts and closed in the red. Although Wall Street managed to close off the daily lows, the indexes mainly rose at the back of solid earnings reports that led to gains in the futures market.
US bonds yields
The US government bonds yields have been declining. It shows that the market is observing a risk-off sentiment. The lowered yields have weighed on the Dollar Index, keeping it under pressure for now.
US data docket
On Tuesday, July 27, the US data came mixed that couldn’t help the Greenback. First, the Durable Goods Orders came at 0.8% m/m for June, which was expected to come at 2.1%. Second, the core readings, Nondefense Capital Goods Orders ex Aircraft, showed an increase of 0.5%, which also missed the expectations. However, the CB consumer confidence showed an improvement. The figures came at 129.1 from the previous 128.9, which slightly compensated the US Dollar.
Fed’s verdict
Market participants are mostly neutral as they await the Fed’s decision about interest rates followed by their key statement.
The market has already discounted the impact of the Fed’s pause on rate hikes for now and their expected dovish outlook. It means that the US Dollar may not further see a major sell-off even if the Fed’s tone is dovish.
Contrarily, the Fed has to hint about what’s going to happen in September. So, if the Fed leaves any hawkish hint like tapering the QE or increasing rates earlier than expected, the markets can trigger high volume in dollar buying.
DXY Dollar Index technical forecast: crucial levels to watch
On the 4-hour chart of the DXY, the ascending trendline remains intact, which ultimately supports the index to rise towards 100-period SMA around 92.60.
However, any further rise can find resistance in an old descending trendline near the 92.90 – 93.00 area.
If the DXY manages to break beyond the 93.0 handle, we may expect the index to hit the monthly highs at 93.30 ahead of the yearly peak around mid-93.00.
On the flip side, a downside break of 92.30 may lead the pullback towards 200-period SMA at 92.10 before confirming further bearish action. However, if bears hold stronger, they may plunge below the 92.00 marks leading to 91.50 essential support.
