US Dollar opens week in green ahead of Fed 2024 first move

• The US Dollar continues to trend upwards from late Friday. 
• Traders gear up for a very packed week with all eyes on the Fed decision due on Wednesday. 
• The US Dollar Index could break down from current levels at around the 200-day SMA.

The US Dollar (USD) edges up on Monday’s European session, in a perfect example of how traders always take into account the sum of all components. The USD seems to be ignoring market bets of a dovish US Federal Reserve (Fed) that plans upcoming rate cuts to focus instead on the possibility that . Chairman Jerome Powell delivers a hawkish pause on Wednesday.  

On the economic front, some market-moving elements are coming out even before the Fed meeting, namely Tuesday’s JOLTS Job Openings data for December. On Wednesday, the US Federal Reserve rate decision and the speech by its Chairman Jerome Powell is due. Traders will need to keep some ammunition for other the main events on Thursday and Friday: The Institute for Supply Management (ISM) will release its Manufacturing PMI on Thursday, while Nonfarm Payrolls and the final University of Michigan Sentiment Index will be published on Friday to close off the week. 

Daily digest market movers: It’s not all about the Fed

• European Central Bank (ECB) member Luis de Guindos said that the Red Sea situation does not impact the next rate decisions for the ECB, according to Bloomberg. This contradicts comments from ECB President Christine Lagarde, who said last week during the rate decision meeting that the Red Sea situation could add to inflationary pressures and must be monitored. 
• Major Chinese construction group Evergrande has been deemed bankrupt and in default by a Hong Kong court. The ruling came after creditors didn’t reach a restructuring deal. 
• Red Sea risk is escalating again after several headlines were issued over the weekend of increasing violence between Houthi rebels and US forces. 
• At 15:30 GMT, the Dallas Fed Manufacturing Business Index for January will be released. The previous number was at -9.3.
• The US Treasury will be placing a 3-month and a 6-month bill near 16:30 GMT. 
• Equity markets in Europe are looking for direction even after Asian indices closed in the green earlier this Monday. Japan saw both the Nikkei and the Topix close up nearly 1%. US Futures are flat or mildly in the red. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 97.9% possibility for an unchanged rate decision on Wednesday, with a slim 2.1% chance of a cut.
• The benchmark 10-year US Treasury Note trades near 4.12% and is showing small signs of a breakup in correlation with the US Dollar Index (DXY). Although there is some US Dollar strength at hand this Monday, the US bond market is not really following suit. 

US Dollar Index Technical Analysis: Pivotal week for DXY

The US Dollar Index (DXY) is still stuck in a tight range between two very important moving averages: the 55-day (103.10) and the 200-day (103.51) Simple Moving Average (SMA). The turn of events and data last week proved not enough to push the US Dollar Index higher. Expect the Fed meeting and the US Jobs Report to be pivotal for the Greenback this week. 

In case the DXY is able to run further away from the 200-day SMA, more upside is in the tank. Look for 104.41 as the first resistance level on the upside, in the form of the 100-day SMA. If that gets breached as well, nothing will hold the DXY from heading to either 105.88 or 107.20 – the high of September.  

With the repetition of another break above the 200-day SMA, yet again, a bull trap could form once prices start sliding below the same moving average. This would see a long squeeze, with US Dollar bulls being forced to start selling around 103.10 at the 55-day SMA. Once below it, the downturn is open towards 102.00.