DXY: US dollar index eerily calm ahead of the Fed decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jun 14, 2021
  • The US dollar index was at a strong resistance level on Monday.
  • Investors refocused on the upcoming Federal Reserve interest rate decision.
  • Analysts expect the Federal Reserve will leave its monetary policy unchanged.

The US dollar index (DXY) was little changed on Monday as traders started to refocus on the upcoming Federal Reserve interest rate decision. It is trading at $90.50, which is about 0.60% above its lowest level on Friday.

Federal Reserve and US data dump

The biggest focus among dollar index investors is the upcoming Federal Reserve interest rate decision that will happen on Thursday this week. Analysts expect the Jerome Powell-led bank to leave interest rates and quantitative easing policy unchanged. 

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Still, they will be looking at whether the bank will include the term transitory in the statement. The Fed has insisted that it will leave the monetary policy unchanged since the recent strong numbers were transitory. 

The Fed decision comes at an important time for the US economy. The government has already vaccinated millions of people and delivered trillions in stimulus. Lawmakers in Washington are also deliberating on the next trillion-dollar infrastructure package.

Meanwhile, recent data has shown that the US economy is firing on all cylinders. For example, the US unemployment rate has dropped from 6.1% in April to 5.8% in May. At the peak of the pandemic, the unemployment rate was close to 15%.

Similarly, consumer and producer prices have soared. Last week, data showed that the headline consumer price index (CPI) data rose to a 13-year high of 5% while core CPI rose to the highest level since 1992. House prices have also soared, helped by the relatively low-interest-rate environment. 

The Fed decision will come a day after the US publishes its retail sales and producer price index (PPI) data. Analysts expect that sales slowed down in May as the impact of the stimulus started fading. At the same time, it comes at a time when other central banks like the Bank of Canada (BOC) and Reserve Bank of New Zealand (RBNZ) have turned hawkish.

US dollar index technical outlook

US dollar index
US dollar index chart

The four-hour chart shows that the US dollar index has found a substantial resistance at the $90.63 level. It has struggled moving above this level several times before. Also, the index is along the 23.6% Fibonacci retracement level and slightly above the 25-day and 15-day exponential moving averages (EMA). 

It also seems to be forming an ascending triangle pattern. Therefore, in the near term, there is a possibility that the index will bounce above this resistance ahead of the FOMC decision.

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