In the immediate term, the USD index needs to regain the 103.50 local barrier

The greenback stays elevated at the start of the week, trading slightly higher nearly across the market. The USD index managed to hold above the 103.00 mark during the pullback witnessed ahead of the weekend. On Monday, the buck is trending higher along with US Treasury yields. The 10-year benchmark note yields approaches the key 3.00% figure.

Now that the market focus is shifting towards the Fed meeting, traders expect the central bank to raise rates by 50 basis points on Wednesday after Chief Powell last month opened the door to a more aggressive normalization of the monetary conditions.  As a 0.5% interest rate hike is already priced in by market players, the central bank’s tone on the outlook for future hikes will be in focus. Should the Federal Reserve confirm its hawkish stance on tightening, the dollar may receive another boost across the board. 

In the immediate term, the USD index needs to regain the 103.50 local barrier in order to challenge long-term highs around the 104.00 figure that capped the rally last week. On the downside, the nearest support is expected at 103.00, followed by the 102.80 zone where last week’s lows arrive. Later in the day, the ISM manufacturing index and construction spending data could affect dollar’s short-term dynamics. 

Meanwhile, EURUSD came under renewed downside pressure after Friday’s rejection from the 1.0600 zone that capped the short-lived bounce. The pair is sitting around 1.0520 during the European hours, shedding 0.18% on the day. The common currency looks set to revisit multi-year lows around 1.0470 after some hesitation as both fundamentals and technical keep pointing to the downside at this stage while USD bulls stay in the game despite the overbought conditions. 


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