DXY inter-markets: pullbacks expect to be limited

The US Dollar Index, which gauges the buck vs. a basket of its main rivals, is struggling for direction at the end of the week, currently alternating gains with losses in the 95.50/40 band.

While market participants seem to have already digested the recent message from the FOMC meeting, USD still remains vulnerable although appears well underpinned by the support line off 2016 low at 91.88 seen on May 3.

Yields in the US money markets are reflecting the poor momentum around the Dollar, trading in a ‘sea of red’ practically all across the curve. Fed Funds futures prices have abandoned the area of recent lows and are heading higher, somewhat supporting USD.

According to CME Group’s FedWatch tool and based on Fed Funds future prices, the probability of a rate hike by the Federal Reserve at the December meeting has climbed to levels just shy of 52% and stays above 12% for the month of November, all after the Fed has clearly pointed to a rate hike at one of the next meetings.

Playing against USD upside momentum, volatility tracked by VIX has dropped to multi-day lows around 12%, levels last seen in early September.

In the meantime, DXY remains well supported in the 94.80 area, where sits the support line off 2016 low and is reinforced by a retracement of the July-August drop. If cleared, the September low at 94.44 emerges next ahead of August low at 94.05. On the upside, there are no relevant hurdles until the 96.00/96.30 area, where are located the 200-day sma, another retracement of the July-August drop and recent ‘triple tops’.

The next risk event for the greenback will by today’s speeches by Philly Fed P.Harker (2017 voter, hawkish?), Atlanta Fed D.Lockhart (2018 voter, centrist) and Cleveland Fed L.Mester (voter, centrist/hawkish), all due later in the NA session.