Dollar is in quiet mode ahead of Fed’s decision
The dollar index remains at the back foot, but holding in a quiet mode on Wednesday, awaiting Fed’s decision for fresh direction signal.
Technical picture is firmly bearish on daily chart and favor further weakness, though oversold stochastic and the price action facing headwinds at 102.64 Fibo support (61.8% retracement of 100.66/105.85), which holds bears for the second consecutive day.
However, fundamentals are in focus and expected to be a key driver of the greenback, with Fed’s policy decision likely to define direction.
Dollar’s prevailing negative tone was interrupted last week by strong rally on news of Credit Suisse collapse, which strongly boosted demand, but the greenback failed to capitalize of strong risk aversion and quickly reversed over 1% advance on last Wednesday, keeping the larger picture negative.
The US policymakers are in difficult position as stubbornly high inflation requires further policy tightening, but another rise in borrowing cost may harm already fragile conditions in financial sector, as high interest rates strongly contributed to the latest cracks in the banking system.
Bullish scenario for the greenback would require a 25 basis points hike and hawkish stance in short-term projections, while 0.25% increase but softer tones from Fed Chief Powell, would likely be insufficient to significantly lift the dollar.
On the other hand, surprise action in which the Fed will keep rates unchanged today, would spark fresh sales, but would also raise a number of questions about the situation in financial system which contributed to such decision and likely further boost uncertainty.
Immediate and solid supports lay at 106.64/51 (Fibo 61.8% / daily Ichimoku cloud base) and firm break here would spark stronger acceleration towards 101.88 (Fibo 76.4%) and key 100.66 (2023 low of Feb 2) in extension.
Conversely, lift above pivotal barrier at 103.22 (daily cloud top) would revive bulls for stronger rally.
Res: 103.22; 103.61; 103.85; 104.23
Sup: 102.64; 102.37; 101.88; 101.00