US Dollar in narrow range ahead of the last Fed meeting for 2023

• The US Dollar is in the green against all major peers. 
• Traders brace for an expected firm pushback on rate cuts from the Fed. 
• The US Dollar Index hovers around 104 with 105 targeted if the Fed delivers hawkish message. 

The US Dollar (USD) is steady to sideways with small gains against all major G20 currencies. Traders are bracing for the last US Federal Reserve meeting of 2023. Although another pause in the monetary policy rate looks to be a given, the guiding speech from US Fed Chairman Jerome Powell will be the event that might move the needle. Another factor could be the Fed’s Dot Plot, forecasting the trajectory of interest rates based on the consensus views of Fed members.  

On the economic front, all eyes will be on 19:00 GMT for the official rate announcement and initial guidance, followed by the press conference with Jerome Powell at 19:30 GMT. With the US Calendar bearing Producer Price metrics as well, a snooze fest is not in the cards. Instead expect a bumpy road in the runup towards the last Fed meeting of 2023.

Daily digest: not a straight line to Fed’s decision

• Near 12:00 GMT the Mortgage Bankers Association (MBA) has released the Mortgage Applications for last week. Previous number was 2.8% and now came out at 7.4%.
• At 13:30 GMT the Producer Price Metrics will be released. It measures the inflation on the production side for manufacturers and companies. Any upticks in the Producer Price metrics will be passed on further down the line to the clients in the stores and filter into Consumer Price Index numbers:
  1. Monthly Headline Producer Price Index is expected to head from -0.5% to 0.1%.
  2. Yearly Headline Producer Price Index is expected to head from 1.3% to 1%.
  3. Monthly Core Producer Price Index number is to head from 0% to 0.2%.
  4. Yearly Core Producer Price Index to decline from 2.4% to 2.2%.
• At the stroke of 19:00 the Fed will release its monetary policy, expected to remain unchanged at 5.5%. A statement will be released as well, which will have the Fed’s Dot Plot projections.
• At 19:30 GMT, US Fed Chairman Jerome Powell will take the stage and give guidance to the markets on the stance of the Fed. 
• Equites are holding steady in European trading with minor changes for the day. US futures are mildly in the green as well ahead of the main event this Wednesday. Chinese equities were in the ropes again with the Hong Kong Hang Seng down over 1% at its closing bell. With markets still doubting between risk-on or risk-off, the steady and sideways DXY moves confirms that traders are awaiting further elements. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 98.2% chance that the Federal Reserve will keep interest rates unchanged this Wednesday.
• The benchmark 10-year US Treasury Note trades near 4.19%, in a whipsaw pattern where the floor around 4% for now looks to be holding the pressure for now. 

US Dollar Index technical analysis: Technical bearish

The US Dollar is sending very mixed signals on its US Dollar Index (DXY) daily chart.  The fact that the daily price action is showing lower highs with support holding steady along that 200-day Simple Moving Average (SMA) at 103.55, points to a bearish pressure building. This makes it very clear that two scenarios are on the table for the outcome in the DXY this Wednesday. 

The DXY could snap the declining tops and print new highs for not only the past few days, but for the past week. This means that 104.26 needs to break in order to deliver a bullish signal and see the Greenback advance against several major different currencies. In a case where the Fed and Powell deliver a very hawkish message to the markets, with cuts being repriced to the second or third quarter of this year, DXY could soar towards 105.

To the downside, the 200-day SMA could snap if the Fed drops the ball. Markets are expecting cuts, and should the Dot Plots confirm that idea, while Powell would say that cuts are not foreseen in an attempt to remain hawkish. Expect traders to disregard his comments, buy into US bonds, with US yields dropping again and seeing the Greenback in its turn nosediving towards 102.50, the low of November.