US Dollar Index looks offered around 107.00 ahead of FOMC

• The index comes under some selling pressure near 107.00.
• US yields look to regain some traction ahead of the Fed meeting.
• The Federal Reserve is expected to hike rates by 75 bps later on Wednesday.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, comes under some mild downside pressure and challenges the 107.00 region on Wednesday.

US Dollar Index now looks to the Fed

The index now gives away part of the Tuesday’s strong advance and hovers around the 107.00 neighbourhood, all amidst a cautious note ahead of the FOMC event due later in the NA session.

The Fed, in the meantime, is largely anticipated to raise the Fed Funds Target Range by 75 bps to 2.25%-2.50%, although investors will closely follow the subsequent press conference by Chief Powell looking for further details regarding further move on rates in the next months.

Other than the Fed gathering, Durable Goods Orders, MAB Mortgage Applications and advanced Goods Trade Balance figures are also due in the NA session.

What to look for around USD

The index came under downside pressure following nearly 20-year highs north of the 109.00 mark in mid-July, although it seems to have met some decent support near 106.00 for the time being.

So far, the dollar remains underpinned by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors.

On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: MBA. Mortgage Applications, Durable Goods Orders, Advanced Goods Trade Balance, Pending Home Sales, Fed Interest Rate Decision, Powell Press Conference (Wednesday) – Flash Q2 GDP, Initial Claims (Thursday) – PCE Price Index, Personal Income, Personal Spending, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is down 0.20% at 106.98 and faces initial support at 106.11 (weekly low July 22) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 109.29 (2022 high July 15) would expose 109.77 (monthly high September 2002) and then 110.00 (round level).