US Dollar looks set to remain steady ahead of BoJ and Fed meetings

• The US Dollar trades stable in a tight range on Monday. 
• Traders brace for a historic week ahead with the BoJ poised to snap its decade-long negative interest rate regime. 
• The US Dollar Index trades around the mid 103.00s and is expected to remain steady. 

The US Dollar (USD) is having a zen moment on Monday before turmoil is set to pick up with the Bank of Japan (BoJ) rate decision on Tuesday and the US Federal Reserve rate decision on Wednesday. Both meetings will be crucial: The BoJ is set to leave decades of negative interest rate policy while trying not to disrupt markets, and the Fed will give clues over the interest-rate outlook after the recently hot inflation numbers made markets nervous.  

Monday’s US economic calendar is light. For more pivotal data points, look at Thursday with the preliminary Purchasing Managers Index (PMI) data for March. Right at the end of the week no less than three Fed members, Fed Chairman Jerome Powell included, will deliver speeches and statements that could further guide markets in case the rate decision on Wednesday was not clear enough for markets. 

Daily digest market movers: Markets ready for BoJ

• Vladimir Putin has secured another term as Russian President on Sunday. Despite comments from Putin that peace talks with Ukraine will not take place, China has said it wants to start peace talks. 
• The BoJ is expected to steer its policy rate away from negative rates for the first time in decades. Markets seem to be broadly anticipating the move, with  Japanese equity markets rallying over 2% ahead of the meeting overnight on Tuesday. 
• The People’s Bank of China (PBoC) made a surprise stronger USD/CNY fixing on Monday at 7.0943 while 7.1993 was expected. This comes after analysts thought the PBoC was letting loose on its stronger fixing after a surprise weaker exchange rate on Friday. Currency markets are not really reacting to the fixing. 
• Monday’s US data calendar kicks off at 14:00 GMT with the NAHB Housing Market Index for March. February was in contraction at 48, and the same reading is expected for March.
• The US Treasury Department will allot a 3-month and a 6-month bill at 15:30 GMT.
• Equities are opening the week in the green across the board. Special notice for the Japanese Nikkei and Topix, both up over 2% for this Monday. 
• According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 99%, while chances of a rate cut stand at 1%. 
• The benchmark 10-year US Treasury Note trades around 4.30%, continuing its ascent from last week.

US Dollar Index Technical Analysis: Talk of the town

The US Dollar Index (DXY) is facing two main events this week which could see a surge in volatility for the Greenback, though with the risk of standing still at the end of the rollercoaster ride. Although the BoJ is set to deliver a game-changing rate decision and the Fed will need to be more clear to ease the nervousness in the market, it could actually not move the needle that much on the charts. 

The BoJ rate change has been overly communicated and commented on since December last year, while markets have grown accustomed to the constant repricing of when that initial rate cut from the Fed could take place.

On the upside, the 55-day Simple Moving Average (SMA) at 103.46 is facing some pressure again, likewise with Friday. Not far above, there is a double barrier with the 100-day Simple Moving Average (SMA) near 103.63 and the 200-day SMA near 103.70. Depending on the catalyst that pushes the DXY upwards, 104.96 remains the key level on the topside. 

Should both central bank meetings turn into a non-event, expect to see some easing in the US Dollar.  In this scenario, the downside looks inevitable once markets move forward again to price in a Fed rate cut for June, with 103.00 and 102.00 up next. Once through there, the road is open for another leg lower to 100.61, the low of 2023.