Traders Brace For The Fed – DXY in Focus

Fed in FocusAll eyes today are on the US Dollar as the Fed prepares to deliver its January FOMC decision. While no policy change is expected this time around, traders will be carefully scouting the contents of the statement and post-meeting presser as they look to gauge when the Fed is likely to ease rates out of restrictive territory.Rate-Cut PushbackOver the last two months, the Fed has been pushing back against those calling for early 2024 rate cuts in line with strengthening US data. Robust readings in GPD, retail data and labour market data along with an uptick in inflation last month, have seen traders scaling back near-term rate-cut expectations, allowing USD to turn higher again.Hawkish Fed RisksToday, traders will be looking to see whether the Fed takes a firmer stance against these rate-cut expectations. If this is the case, USD is vulnerable to a breakout higher as traders further pull back their rate-cut projections. With US job openings still growing, as per the latest JOLTS data, there seems little reason for the Fed to engage with the prospect of a rate cut in the coming quarter, raising bullish USD risks into today’s meeting. The scale of the move will depend on the extent to which the Fed pushes back. With the next round of US jobs data due in just two days, there is plenty of room for USD to catch a fresh leg higher here if we see further upbeat readings on Friday.Technical ViewsDXYThe rally in the index has stalled for now into a test of the 103.48 level. With momentum studies bullish, and given the channel break, the focus is on a continuation higher here and a breakout towards 104.95 next. If the market is wrong sided today, 101.22 sits below as next support to note.