US Dollar Index News: DXY Traders Poised for Heightened Volatility Fueled by Powell’s Remarks

Highlights

• Dollar edges higher ahead of Fed Chair Powell’s speech. 
• Futures traders see a 16% chance of a rate hike in January. 
• Others are predicting a 21% chance of a rate hike in March 2024. 

Overview

The U.S. Dollar is edging higher against a basket of currencies on Wednesday, extending its really for a third session after some Federal Open Market Committee (FOMC) members hinted at the possibility of further rate hikes. Meanwhile, traders prepared for remarks from Chair Jerome Powell at 14:15 GMT. They are hoping for clarity on the Fed’s future policy path.

The U.S. dollar index, which last week clocked its sharpest weekly fall in about four months, is currently trading at 105.75, up 0.2%, putting it in a position to post a weekly gain.

The greenback, which tested a seven-week low at the start of the week in the wake of the Fed’s decision to hold its policy rate steady and on a weaker than expected U.S. Non-Farm Payrolls report, may have found support as traders continue to debate whether U.S. interest rates have peaked, or if another one is coming.

Futures traders point to a roughly 16% chance of another hike by January, but are pricing in a 21% chance that rate cuts could come as early as March, according to the CME FedWatch tool. Meanwhile, U.S. Treasury yields were little changed Wednesday as investors considered the path ahead for monetary policy as they looked to comments from Federal Reserve officials.

The focus now turns to remarks from Fed Chair Powell. There is the possibility of further upside activity, assuming Powell and other FOMC members continue to remind markets of their ‘higher for longer’ narrative.

Technical Analysis

The U.S. Dollar Index (DXY) is trading higher on Wednesday, for a third session as traders react to the possibility of another rate hike by the Fed in perhaps January.

With the index currently testing minor support at 105.628 and the 50-day moving average at 105.768, traders are bracing for heightened volatility and the possibility of a breakout in either direction.

Bullish traders are hoping for an upside breakout on an extended move over the 50-day moving average. A sustained move over this level will indicate the presence of buyers with plenty of room to the upside. If the buying volume is strong enough, it could even lead to a retest of resistance at 106.904.

On the other hand, bearish traders are eyeing the minor support at 105.628. A sustained move under this level could trigger an acceleration to the downside with Monday’s low at 104.848, the next major target.