USD Index appears offered and could revisit 111.00, FOMC in sight

• The index loses further momentum and approaches 111.00.
• US ADP report next of relevance in the docket.
• The Fed is expected to hike rates by 75 bps later on Wednesday.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main rival currencies, adds to Tuesday’s retracement and returns to the low-111.00s midweek.

USD Index focuses on FOMC

The index remains on the defensive and threatens to retest the 111.00 neighbourhood amidst the moderate recovery in the risk-associated universe on Wednesday. In addition, the so far mixed performance in US yields across the curve also collaborates with the downbeat tone in the buck.

Later in the session, weekly MBA Mortgage Applications are due in the first turn seconded by the ADP report for the month of October, all ahead of the FOMC event due later in the NA session.

On the latter, the Fed is widely anticipated to raise the FFTR by 75 bps, although extra attention is expected to be on the subsequent press conference by Chair Powell, where a potential pivot could be in the centre of the debate.

What to look for around USD

The dollar comes under marked downside pressure and approaches the 111.00 zone ahead of the key FOMC gathering due later on Wednesday.

In the meantime, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: MBA Mortgage Applications, ADP Employment Change, FOMC Interest Rate Decision, Chief Powell press conference (Wednesday) – Balance of Trade, Initial Jobless Claims, Final Services PMI, ISM Non-Manufacturing (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 0.24% at 111.27 and the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the upside, the next hurdle comes at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).