The US. Dollar is edging higher against a basket of major currencies on Monday, but gains are being capped by position-squaring and some light profit-taking ahead of the start of the Federal Reserve’s two-day meeting on Tuesday.
Traders are also bracing for the release of several key reports including the major ISM Manufacturing PMI. The report is expected to come in at 57.5, up from the previously reported 57.1. This will confirm the strength in the U.S. economy, following last week’s first-quarter GDP number, which showed a contraction.
At 11:25 GMT, June U.S. Dollar Index futures are trading 103.400, up 0.437 or +0.42%. On Friday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.57, down $0.11 or -0.41%.
Investors are expecting the Fed to hike rates by 50 basis points when it meets, and the uncertainty is around how hawkish Fed Chair Jerome Powell will sound in comments following the decision.
Traders are pricing in an aggressive run of rate hikes from the Fed as it tries to tame soaring inflation. The talk on the street is policymakers are planning on additional 50-basis point rate hikes in June and July, following the May increase. After that, traders are looking for additional 25-basis point rates hikes at each meeting until at least the end of the year.
The biggest worry for traders is that the Fed will go too far, too fast and trigger the start of an economic slowdown.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. A trade through 103.95 will signal a resumption of the uptrend. A move through the August 2003 main top at 104.024 will reaffirm the uptrend.
A trade through 99.810 will change the main trend to down. This is highly unlikely, but since the market is up seven sessions from its last main top, traders will start watching for a closing price reversal top to signal a short-term end to the rally.
The minor trend is also up. A new minor top has formed at 103.950. This move doesn’t mean anything right now, other than the presence of some sellers.
The minor range is 99.810 to 103.950. Its 50% level at 101.880 is the nearest downside target and potential support.
Daily Swing Chart Technical Forecast
The direction of the June U.S. Dollar Index into the close on Monday is likely to be determined by trader reaction to 103.380.
A sustained move over 103.380 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into 103.950 to 104.024. The latter is a potential trigger point for an acceleration to the upside.
A sustained move under 103.380 will signal the presence of sellers. Taking out 102.810 will indicate the selling pressure is getting stronger. This could trigger the start of an acceleration to the downside with 101.880 the next major downside target.