US Dollar holding on to 97.00, FOMC on sight

The US Dollar Index – which gauges the buck vs. its main competitors – has trimmed some of its earlier losses and is now looking to keep the trade above the 97.00 handle.

US Dollar cautious ahead of FOMC

The index remains on the defensive during the first half of the week, trading within a narrow range with support in the upper-96.00s and interim up barrier around Monday’s tops near 97.30. This area is also reinforced by the 23.6% Fibo of the May-June drop.

The buck seems to be on autopilot ahead of the FOMC gathering on Wednesday, with market expectations clearly pointing to a 25 bp rate hike. Supporting this view, CME Group’s FedWatch tool sees the probability of further tightening tomorrow at above 99% based on Fed Funds futures prices.

Despite some hawkish message is expected from the Committee, investors will also focus on any hint regarding the likely timing of the Fed starting to reduce its balance sheet, as well as the ability of the Fed to deliver a third rate hike at some point in H2 (December sounds a potential candidate so far).

In the US data space, the NFIB index stayed at 104.5 in May, while producer prices rose at an annualized 2.4% during the same period, surpassing initial forecasts.

US Dollar relevant levels

The index is down 0.12% at 97.03 facing the next down barrier at 96.45 (2017 low Jun.7) followed by 95.91 (low Nov.9 2016) and then 94.95 (low Sep.22 2016). On the flip side, a surpass of 97.47 (high Jun.9) would open the door to 97.70 (high May 30) and finally 98.11 (50% Fibo of the May-June drop).