US Dollar Index remains depressed near 111.50 amid indecision over Fed’s December move

• US Dollar Index justifies Tuesday’s “hanging man” candlestick to print mild losses ahead of the key FOMC.
• Market’s fears surrounding Fed’s ‘dot plot’ contrasts with hopes of firmer DXY.
• Recent US data raised expectations of hawkish Fed verdict even as 75 bps rate hike is priced-in.
• US ADP Employment Change, risk catalysts are also important for near-term directions.

US Dollar Index (DXY) renews its intraday low around 111.40, mildly offered while extending the previous day’s losses, as traders brace for the all-important Federal Open Market Committee (FOMC) meeting on early Wednesday. In doing so, the greenback’s gauge versus the six major currencies also traces the recently softer US Treasury yields ahead of the key Fed announcements.

That said, the US 10-year Treasury yields remain depressed at around 4.03%, following an upbeat start to November.

The reason for the benchmark bond’s latest strength could be linked to the market’s fears of easy rate hike signals as the 75 basis points (bps) of a lift to the interest rate is already priced in. Even so, the firmer US data keeps the DXY bulls hopeful.

On Tuesday, the US JOLTS Job Openings increased to 10.717M in September versus the 10.0M forecast and upwardly revised 10.28M previous readings. Further, US ISM Manufacturing PMI increased to 50.2 in October versus 50.0 market forecasts and 50.9 prior. On the same line, final readings of the US S&P Global Manufacturing PMI for October rose past 49.9 initial forecasts to 50.4 but stayed below 52.0 readings for the previous month.

It should be noted that the latest Reuters poll for the DXY sounds bullish and challenge the US dollar bears, suggesting a mixed play and the market’s indecision of late. The dollar's retreat in foreign exchange markets is temporary, according to a Reuters poll of currency strategists, who said the greenback still had enough strength left to reclaim or surpass its recent highs and resume its relentless rise.

Against this backdrop, the S&P 500 Futures remains indecisive even as Wall Street closed in the red.

Looking forward, the DXY bulls shouldn’t be too excited amid the history of the Fed to disappoint the greenback buyers. Also likely to weigh on the greenback could be the hopes that the Fed policymakers will signal a slower rate increase from December. Even so, the Fed’s “dot plot” and Chairman Jerome Powell’s press conference will be crucial to watch for clear direction.

Also read: Fed November Preview: Is it time for a dovish signal?

Technical analysis

US Dollar Index buyers need to cross the previous day’s top surrounding 111.80 to overcome the bearish bias backed by the “hanging man” candlestick.