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Ahead of the Fed meeting, the US dollar experienced a fall following a false positive surge higher. Traders were taken aback by the negative ADP figure. The US Dollar Index is still trapped in its trend, circling the 200-day SMA. At 103.102, the DXY chart shows a loss of -0.031%.
The dollar is facing its first main event of 2024 with the US Federal Reserve rate decision for January. All eyes will be on the central bank’s Chair Jerome Powell and what he will deliver to the markets.
A misleading bullish surge higher ahead of the Fed meeting has caused the US dollar to drop. ADP’s negative print caught traders off guard, and the US Dollar Index is currently trading close to its 200-day SMA. FOMC Chairman Jerome Powell of the US Federal Reserve will speak at 19:30 when the FOMC releases its first rate decision of 2024. Powell’s remarks may have been more dovish than hawkish, which would have dashed expectations of a swift rate cut.
On the economic front, traders are expecting confirmation of the ADP Employment Change report jumping out of contraction territory over 50, similar to the PMI prints last week. The Chicago Purchasing Managers’ Index for January will also be released, with traders seeking confirmation of the number jumping out of contraction territory over 50.
Equity markets are lower after missed earnings from AMD and Alphabet, and the miss on expectations for the Chinese Manufacturing PMI. The CME Group’s FedWatch Tool shows that markets are pricing in a 97.9% possibility for an unchanged rate decision this Wednesday evening, with a slim 2.1% chance of a cut. The benchmark 10-year US Treasury Note trades near 4.01% and is at the lowest level for this week ahead of the Fed rate decision.
Technically, ADP data could act as a sign on the wall for Fed officials. The DXY Index might find its catalyst this Wednesday, as it has been unable to trade away from both the 55-day (103.02) and the 200-day (103.54) Simple Moving Averages despite several false breaks and both MAs getting chopped up.
Although the Fed meeting this Wednesday is unlikely to usher in any rate changes, the outcome could still favor the Greenback if Powell delivers a hawkish statement to the markets. If that happens, the DXY will break away from the 200-day SMA, with 104.36 as the first resistance level to the upside. If that gets breached, nothing will hold the DXY back from heading to either 105.88 or 107.20, the high of September.
