USD index on the defensive ahead of US CPI, Fed verdict

The US dollar, when measured against a basket of six major currencies, enjoyed good two-way moves so far this Wednesday, as investors struggle for a fresh directional impetus ahead of the much-awaited US CPI and FOMC monetary policy decision.

The USD index extended its overnight retreat from three-week highs of 94.21 and fell as low as 93.88 in mid-Asia, after the headlines hit the wires that a Democrat won a hard-fight for a US Senate seat in Alabama, marking the first Democratic win in the state since 1992.

The US political headlines raised concerns over the passage of the tax bill by the Trump administration, triggering fresh uncertainty about the outlook for the buck going forward. Moreover, markets extended the sell-off on the back of profit-taking after the recent bounce and on repositioning ahead of the key FOMC verdict.

The sell-off soon stalled as the bulls were offered respite by a fresh bout of buying interest seen around Treasury yields across the curve, in response to rising US inflation expectations after yesterday’s upbeat PPI release. However, the recovery faltered just ahead of the 94 handle, as ‘Sell the fact’ trades on the Fed outcome are likely, with a 25bps rate hike already discounted by the market participants. At the time of writing, the USD index (DXY) trades -0.06% at 93.98 levels.

All eyes now remain on the Fed’s projection on the pace of its rate hikes next year and policymakers’ views on the outlook for inflation.

USD index Technical Levels:

To the upside, resistances are aligned at 94.21 (3-week tops), 94.50 (psychological levels) and 94.86 (Nov 9 high). The spot finds the supports at 93.72 (50-DMA), 93.24 (100-DMA) and 93.00 (round figure).