US Dollar Index challenges 3-month lows around 96.50

• DXY remains parked in the mid-96.00s ahead of US docket.
• Dovish Fed keeps weighing on investors’ sentiment.
• Advanced manufacturing PMI surprised to the downside.

The US Dollar Index (DXY), which gauges the greenback vs. its main competitors, keeps navigating a narrow 20-pip range in the mid-96.00s.

US Dollar Index weaker post-Fed, ignores data

The index remains well into the negative territory so far today, giving away last week’s gains and charting at the same time a bearish ‘outside candle’ on a weekly basis, which could be a prologue for losses to come.

The buck has accelerated the downside following poor prints from the docket in past weeks and Wednesday’s confirmation by the Federal Reserve that rate cuts are now back to the table after some years, all within a renewed ‘accommodative’ stance.

Today, advanced figures from Markit showed the manufacturing PMI is seen art 50.1 for the current month and services PMI is expected at 50.7. Later in the session, Existing Home Sales during May are due seconded by the ‘Fed Listens’ event, where FOMC’s L.Brainard and Cleveland fed L.Mester are due to speak.

DXY, in the meantime, is flirting with the critical contention area around 96.50, home of the key 200-day SMA, last week’s low and the support line off September 2018 low. A breakdown of this zone on a convincing note should put the 96.00 neighbourhood back on the radar.

What to look for around USD

The Federal Reserve is not ‘patient’ anymore, and rate cuts have already emerged on the horizon (likely to be delivered at the September and/or December meeting), while an ‘insurance cut’ could come as early as July. Compared with other central banks, the Fed has more room to manoeuvre in case it goes ‘full accommodative’ in the next months (due to the hiking cycle that started in 2015). If we add that the US economy is healthier than its overseas peers, the greenback’s status of ‘global reserve currency’ and its safe haven appeal, further weakness in the buck is far from a done deal.

US Dollar Index relevant levels

At the moment, the pair is retreating 0.08% at 96.55 and a breach of 96.46 (low Jun.7) would open the door for 96.04 (50% Fibo of the 2017-2018 drop) and then 95.82 (low Feb.28). On the other hand, the next up barrier emerges at 97.80 (monthly high Jun.3) seconded by 97.87 (61.8% Fibo of the 2017-2018 drop) and finally 98.37 (2019 high May 27).