DXY: Dollar erases losses, back above 97.00

• The US dollar gained strength during the US session, particularly against commodity currencies. 
• FOMC meeting underway, decision tomorrow: rate hike expected, attention on projections. 

Ahead of Wednesday’s Federal Reserve statement, projections and decisions, the US Dollar Index (DXY) recovered above 97.00 and currently trades at 97.13, the highest level since the Asian session. Earlier today bottomed at 96.70, the lowest since December 10. 

Market participants await tomorrow’s events. Today president Trump again criticized the Fed for raising rates. Chairman Powell will be asked tomorrow about those comments.  Fed’s policy is supposed to be completely independent from the government. 

“While we think the Fed’s base case remains that the gradual hiking cycle will continue a bit further, the Fed will probably remove more of its forward guidance to increase its flexibility (as it did in June), as risks to the rate outlook become more two-sided with the Fed funds rate in the broad neutral range. Do not be surprised if the Fed removes that it ‘expects further gradual increases in the target range’ from the statement. It makes sense to get rid of the one-sided rate outlook, as monetary policy becomes more neutral”, said analyst at Danske Bank. 

DXY Short-term levels to watch 

If the greenback, rises further, resistance could be seen at 97.15, followed by 97.25 and 97.40. To the downside, support levels might be observed at 96.90 (Dec 13 low), 96.70 (Dec 18 low) and 96.55.