US Dollar slightly up with markets looking for direction
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- The US Dollar is flat in the aftermath of the BoJ meeting.
- Traders try to keep powder dry towards main events on Thursday and Friday.
- The US Dollar Index sees pressure building on 103 to break lower.
The US Dollar (USD) is flat again, though it keeps flirting with a break below the important 103-level in the US Dollar Index (DXY). Markets are having difficulties with the Bank of Japan (BoJ) rate decision this Tuesday. BoJ governor Kazuo Ueda has tested markets’ patience by not hiking, and postponing the long awaited exit out of negative rates. Markets are starting to recover near the US opening bell after the initial reaction was rather negative in reaction to the nerve game the BoJ is playing, with US yields jumping higher and equities flat to mildly negative.
On the economic front, some very light data lies ahead of Thursday and Friday. In the run-up to the US Gross Domestic Product (GDP) and rate decision from the European Central Bank (ECB) along with comments from ECB’s head Christine Lagarde on Thursday, traders are looking for some clues in the Redbook index and Richmond Fed Manufacturing Index for January. Certainly that last one might initiate some moves in the Greenback, seeing the recent poor performance of several Manufacturing Index numbers over the past few weeks.
US Dollar Index Technical Analysis: Focal point later this week
The US Dollar Index (DXY) is not giving up that easily on its opportunity to possibly pop back up above the important resistance at the 200-day SImple Moving Average (SMA) near 103.48. Despite downside pressure with lower highs and lower lows, the DXY for now is not selling off as one would expect in these kinds of conditions. Expect the main rehearsal to come on Thursday with the ECB rate decision, ahead of the US Federal Reserve meeting next week.
There are some economic data points that could still build a case for the DXY to get through those two moving averages again and run away. Look for 104.44 as the first resistance level on the upside, in the form of the 100-day SMA. If that gets scattered as well, nothing will hold the DXY from heading to either 105.88 or 107.20, the high of September.
A bull trap looks to be underway, where US Dollar bulls were caught buying into the Greenback when it broke above both the 55-day and the 200-day SMA in last week's trading. Price action could decline substantially and force US Dollar bulls to sell their positions at a loss. This would see the DXY first drop to 102.60, at the ascending trend line from September. Once below it, the downturn is open towards 102.00.
