US Dollar declines ahead of key Fed meeting

• DXY Index is noting losses at the start of the week, declining toward 105.70.
• Resilient US economy, hawkish Fed are likely to keep pressure on yields, which may limit losses.
• Markets foresee a hold on interest rates for Wednesday’s Fed meeting.

The US Dollar Index (DXY) is declining on Monday and fell to 105.70. The Bank of Japan (BoJ)'s recent intervention led to a slight drop in the USD value. However, the Greenback's rally is expected to continue, thanks to monetary policy divergence favoring the US Dollar and the anticipation of a hawkish hold from the forthcoming Federal Reserve (Fed) meeting. 

The US economy remains resilient, and sticky inflation may keep the USD’s rally alive. The Fed is maintaining a hawkish stance, resisting market pressure for easing, and a June rate cut seems unlikely. Wednesday’s messaging will be key.

Daily digest market movers: DXY starts week with left foot, eyes on Fed’s decision

Fed is anticipated to adopt a hawkish approach, underscoring hefty growth, sustained inflation in US economy. 
Unchanging interest rates together with robust US data may maintain upward trajectory of US Treasury bond yields. 
Market expectations for subsequent Fed meetings are seen as a 10% likelihood of a rate cut in June, 35% in July, and less than 80% in September. 
 US Treasury bond yields are down, signifying a disfavorable environment for the US Dollar. Specifically, the 2-year yield stands at 4.97%, the 5-year yield at 4.65%, and the 10-year yield at 4.63%. 

DXY technical analysis: DXY bulls struggle under pressure, yet retain control

The indicators on the daily chart reflect a mixed outlook for the DXY. The Relative Strength Index (RSI), despite having a negative slope, maintains a stance in positive territory, indicating resilience among buyers. However, this bullish momentum appears somewhat challenged as evidenced by the freshly formed red bar in the Moving Average Convergence Divergence (MACD), a bearing that typically presages a potential shift toward bearish territory.

Also, the DXY stays comfortably above the 20, 100 and 200-day Simple Moving Averages (SMAs), an indication that buyers still have the upper hand in the intermediate and longer terms. Despite the potential for short-term selling pressure, the narrative of the bulls continues to be supported by this SMA structure.