The US dollar remains under pressure ahead of the Fed meeting

• The greenback sinks to a ten-day low despite a calm start to Monday.
• Traders’ eyes are on the Fed’s decision on Wednesday.
• The US dollar index could fall as it tests the lower limit of the August bandwidth.

The US dollar (USD) is trading substantially weaker on Monday ahead of the US opening bell. The move comes as traders appear to be increasingly convinced that the US Federal Reserve (Fed) will opt for a big interest rate cut on Wednesday. This adds even more importance to the Fed meeting, where Fed Chairman Jerome Powell and his colleagues will have to make a decision about the right way to start the policy easing process: with a big or small interest rate cut .

On the economic data front, a slow start to the week ahead of Wednesday’s Fed meeting. For Tuesday, US retail sales data will be at the forefront of market movement data. For this month, the NY Empire State Manufacturing Index for September will be the only data point on market movement.

Daily Digest market moves: Things just got ugly

• There was another possible assassination attempt over the weekend to kill former US President Donald Trump. The Federal Bureau of Investigation (FBI) rushed to thwart the attempt and arrest the suspect, CNN reports.
• At 12:30 GMT, the New York Empire State Manufacturing Index for September will be released. The main index is expected to rise slightly to -3.9 from -4.7 a month earlier.
• The US Treasury will auction a 3- and 6-month note at 15:30 GMT.
• European stocks are trading sideways, while US futures are trading steady during European trading hours.
• The CME Fedwatch tool shows a much lower 41.0% chance of a 25 basis point (bps) interest rate cut by the Fed on Wednesday, down from the 87% seen last week. Meanwhile, markets raised the odds of a 50bps cut to 59.0% on the back of Fed Dudley’s comments and news articles last week. For the November 7 meeting, another 25bps cut (if September is a 25bps cut) is expected at 20.9%, while there is a 50.2% chance that rates will be 75bps (25 bps + 50 bps) and 29.0% probability that rates will be 100 (25 bps + 75 bps) basis points lower than current levels.
• The benchmark US 10-year yield is trading at 3.64%, still quite close to its 15-month low of 3.60%.

US Dollar Index Technical Analysis: Will It Hold?

While early last week there were chances for the US Dollar Index (DXY) to break above the upper band of 101.90, Monday’s technical analysis should look at the possibility of the index breaking the lower band at 100.62. The seismic shift caused by some media stories and words from former NY Fed member William Dudley is leading to more downward pressure on the US dollar as markets consider a 50bps rate cut both for September and even for November. Catalyst-wise, the current bandwidth should hold until Wednesday’s main event.

The upper bandwidth level for this week remains at 101.90. Above, a steep rally of 1.2% would be needed to bring the index to 103.18. The next uptrend is a very cloudy one, with the 55-day Simple Moving Average (SMA) at 103.40, followed by the 200-day SMA at 103.89, just ahead of the round high of 104.00.

On the downside, 100.62 (Dec 28 low) is holding strong and has already retraced the DXY four times in recent weeks. Should it break, the July 14, 2023 low at 99.58 will be the next level to watch. If this level breaks, early 2023 levels approach 97.73.

US Dollar Index: Daily Chart