US Dollar Index bulls approach 111.00 amid risk aversion, pre-Fed anxiety ahead of NFP

• DXY picks up bids to print three-day uptrend despite snapping four-month winning streak.
• Geopolitical concerns join hawkish Fed bets to propel US dollar’s haven demand.
• Fed’s 75 bps rate hike is priced-in, which in turn highlights clues for Fed’s moves past December for fresh impulse.

US Dollar Index (DXY) extends the previous week’s rebound from a monthly low, mildly bid near 110.80 during Monday’s Asian session. In doing so, the greenback’s gauge versus the six major currencies benefits from the market’s rush for risk safety ahead of the key US data/events, as well as due to the fears emanating from the geopolitical concerns.

Headlines surrounding the Russia-Ukraine grain deal with the United Nations (UN) seem to have challenged the risk appetite of late. “Russia, which invaded Ukraine on Feb. 24, halted its role in the Black Sea deal on Saturday for an ‘indefinite term’ because it could said it could not ‘guarantee safety of civilian ships’ traveling under the pact after an attack on its Black Sea fleet,” reported Reuters.

Also keeping the DXY firmer was Friday’s strong prints of the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditures (PCE) Price Index. However, the fifth quarterly fall in the US private consumption joins fears of the US Federal Reserve’s (Fed) slower rate hike starting from December to challenge the US dollar bulls.

Recently, economists at Goldman Sachs raised the Fed rates outlook and saw the peak at 5% in March. On the same line was the CME’s FedWatch Tool which suggests an 80% chance of the Fed’s 75 bps rate hike during Wednesday’s Federal Open Market Committee (FOMC).

Amid these plays, the yields were down and the US equities braced for a good month with Dow Jones bracing the biggest monthly jump since 1976. Further, the S&P 500 Futures remain mildly offered near 3,910 amid the sluggish markets.

Looking forward, Wednesday’s Federal Open Market Committee (FOMC) will be crucial for DXY as traders seek the Fed’s next moves amid 75 bps rate expectations for this week’s meeting. Also important will be Friday’s US jobs report for October.

Technical analysis

50-DMA challenges short-term DXY recovery around 110.95 before challenging the previous support line from August, now the key resistance near 112.00. Meanwhile, sellers could aim for bearish moves past 110.00.