US Dollar Holds the High Ground Ahead of Fed, ECB and BoJ Meetings. Higher USD?

US Dollar, USD, DXY Index, Fed, FOMC, ECB, BoJ, Hang Seng (HSI) – Talking Points

• The US Dollar resumed strengthening last week but is looking for direction today
• The Fed, ECB and BoJ monetary policy decision lie in wait for later this week
• A common theme will be what officials say in the aftermath. Can USD rally further?

The US Dollar has mostly held onto the gains seen last week ahead of crucial central bank meetings this week.

The Federal Open Market Committee (FOMC) gathering on Wednesday will kick things off ahead of the European Central Bank (ECB) on Thursday and the Bank of Japan (BoJ) on Friday.

Interest rate markets are pricing in a 25 basis point (bp) lift from the Fed and the ECB but no change from the BoJ. The focus at all three conclaves is likely to be on the language and signalling that might emanate from the post decisions commentary.

APAC equities have had a mixed day with Hong Kong’s Hang Seng Index (HSI) slipping lower with hopes of a big stimulus package emerging from China’s Politburo meeting diminishing.

On the other side of the ledger, Japanese indices ran higher on Monday with the Yen mostly maintaining the losses seen from last week. This has led to market perceptions of a boost to exporters there.

Currency markets have had a benign start to the week so far after some decent moves last week. The Aussie, Kiwi and Sterling saw notable declines against the US Dollar and have seen little movement today.

Treasury yields appear contained for now ahead of the FOMC meeting with the benchmark 2-year note trading near 4.85% while the 10-year bond is around 100 bp lower at 3.85%.

Gold has eased slightly, trading near US$ 1,960 at the time of writing while crude oil steadied after initial losses at the open. The WTI futures contract is near US$ 77 bbl while the Brent contract is around US$ 81 bbl.

Today’s economic calendar is dominated by PMI readings across Europe and North America.

The full economic calendar can be viewed here.

DXY (USD) INDEX TECHNICAL ANALYSIS

The DXY (USD) index made a 15-month low 10 days ago at 99.58 which was just above the April 2022 low of 99.57.

Those levels could provide support ahead of a breakpoint at 99.42. Ahead of those levels, support may lie near a series of breakpoints around 100.80

That sell-off saw the price break below the lower band of the 21-day simple moving average (SMA) based Bollinger Band.

Once it closed back inside the band a bullish few days unfolded as discussed here at this time last week.

On the topside, resistance could be at the breakpoint of 101.92 ahead of the prior peak at 103.57.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter