US Dollar trades with gains near mid-December highs ahead of eventful week

• The DXY Index is exhibiting firm gains, trading near its mid-December highs around 103.75.
• Markets remain cautious ahead of the Fed’s decision on Wednesday.
• January’s NFPs are due on Friday.

The US Dollar (USD) Index soared on Monday, trading at 103.75 with gains hitting highs unseen since mid-December. This surge comes ahead of what is anticipated to be an eventful week with the first Federal Reserve (Fed) decision of 2024 on Wednesday and key labor market figures from the US on Friday.

In that sense, market expectations hint at a possible rate cut by the Fed in March. However, if economic growth sustains itself, a March rate cut seems unlikely. This is why bets have continued to shift toward the easing cycle beginning in May. In case the US continues to show resilience and markets delay expectations of the cuts, the downside is limited for the short term. The Fed’s tone on Wednesday will be key for the markets to continue placing their bets on the rate cuts calendar in 2024, so the USD may face volatility.

Daily Digest Market Movers: US Dollar gains as markets turn cautious ahead of Fed’s decision, labor market data

• Markets priced in that the Fed will hold its policy unchanged in its first meeting of 2024.
• The short-term trajectory will be determined if markets continue to give up on the easing cycle beginning in March.
• January's Nonfarm Payrolls are due on Friday and may affect those expectations. On Thursday, markets will also monitor ISM PMIs from the US from the first month of 2024.
• The CME FedWatch Tool indicates that the odds of a cut in March stand around 45%, while the possibilities of the easing cycle to start in May stand around 50%.

Technical Analysis: DXY  bulls regain dominance on the battlefield, medium-term bearish bias still intact

The indicators on the daily chart are reflecting the revival of buying momentum. The positive slope in positive territory of the Relative Strength Index (RSI) indicate that bulls are attaining more strength. This recovery can also be observed in the rising green bars of the Moving Average Convergence Divergence (MACD), alluding to more substantial bullish influence. 

Located above the 20-day Simple Moving Average (SMA), the Index shows the immediate market trend is favoring buyers. The positioning below the 100-day SMA, however, indicates a medium-term bearish bias. But an important development is the position above the long-term 200-day SMA, which suggests that the dominant trend is still bullish. 

Consequently, the current technical environment indicates that while bears had been momentarily in control, DXY buyers are currently on the runway to reclaim dominance. The overall trend still seems to lean toward the bullish side.

Support Levels:  103.50 (200-day SMA),103.30, 103.00.
Resistance Levels: 103.90,104.00,104.20.