The greenback could rally amid the central bank’s hawkishness
The dollar slipped marginally on Friday as the data showed US inflation rose in line with estimates in November. However, the greenback started the new trading week on a positive footing as traders shift focus to the upcoming Federal Reserve meeting that concludes on Wednesday. The US central bank is widely expected to announce a speed up in bond-buying tapering and thus push the dollar higher across the market.
Risk sentiment looks mixed after a positive start to the week and Friday’s rally on Wall Street. As such, following early gains, Asian stocks finished just slightly higher while European equities turned mixed after a modest rise at the opening bell.
EURUSD is back below the 1.1300 figure, still struggling to regain the 20-DMA despite challenging this moving average several times last week. The common currency could dip below 1.1200 if the Fed strikes a hawkish tone in contrast with the ECB that meets on Thursday. As such, the pair could even derail the 1.1100 level for the first time since May 2020.
USDJPY regained a solid bullish bias on Monday but still struggles to get back above the 20-DMA, currently at 113.85. The Fed could trigger a rally in the greenback and thus turn this moving average into support eventually. Should the pair climb back above 114.00, the market focus would shift to multi-year highs seen in the 115.50 area last month.
Meanwhile, gold prices retain a modest upside bias on Monday, still flirting with the $1,790 area. It looks like the precious metal would struggle to regain the $1,800 figure in the short term and could see solid losses instead amid a stronger dollar. On the downside, a break below the $1.760 support area would pave the way to deeper losses.
