USD in Focus Today

The US Dollar is pushing higher today as traders brace for plenty of volatility risk throughout the session. We have both the ADP employment figures and ISM manufacturing due this afternoon ahead of the keenly awaited may FOMC this evening. On the jobs front, traders will be watching today’s ADP print as a gauge ahead of Friday’s headline NFP data. If we see another strong print today, that should prime markets for further upside on Friday, keeping USD supported for now.

FOMC Expectations

With inflation seen remaining elevated as of the last reading, and the labour market still seeing firm jobs growth, traders are sensing hawkish risks heading into tonight’s meeting which might fuel a fresh leg higher in the Dollar.  

Hawkish Risks

Currently, the market is looking for the Fed to begin easing in September, having pushed out original projections for a June rate-cut. However, the risk now is that this date too ends up being pushed out, or the amount of easing forecast this year gets reduced. With inflation and inflation linked readings (PCE, employment cost index) remaining elevated, the Fed has no choice but to keep rates at current levels for longer.

Potential Scenarios

This is the message the market is expecting today. However, if the Fed reaffirms its commitment to pushing ahead with projected easing this year, that should see a muted upside response in USD. The hawkish risk is that the Fed gives any indication that its easing outlook is shifting. If the market gets a sense that the Fed is likely to alter the three rate cuts currently forecast, this will be firmly bullish for USD near-term.

Technical Views

DXY

The rally in DXY has stalled for now into a test of the bull channel highs. Following a brief correction, however, the market is now turning higher once again putting focus on a fresh test of channel highs and the 107.04 level resistance with 107.88 above as the next bull target. To the downside, 104.95 sits as key support.