September 22, 2021 10:20:40

The broad-based rally seen in the dollar since the low earlier this month has paused over the last few sessions. This evening’s Fed meeting and press conference will determine if dollar bulls can break resistance at the March high at 93.43 on the way to cycle highs at 93.72.

The recent disappointing jobs report and the weaker-than-forecast inflation print have tempered market expectations of a taper announcement today. The Fed’s maximum employment focus is key as Chair Powell has already stated that an unwind of emergency stimulus will happen this year. Consensus now sees an announcement in November (with one more NFP), and tapering starting the following month.

With markets already pricing in a reduction in bond buying, it is the pace of the withdrawal that will be the focus going forward. All eyes will also be on the Fed’s projections and “dot plot”. There are some expectations that there may be shift to a first hike in 2022 from the current 2023.

This would clearly undermine Chair Powell’s attempts to break any link between tapering and tightening. But certainly, a 2022 median dot would push the dollar higher and stocks lower. Rates jumped in June and took the buck with them after the dots surprised to the upside at that FOMC meeting.

DXY bullish momentum remains

After the dollar index held its ground just above the late July lows around 91.80 at the start of the month, we saw prices jump higher at the end of last week.  This would suggest the overall bullish trend remains intact.

The push higher above the March peak at 93.43 was seen off but prices are hovering just above near-term support at 93.17. If the dot plot confirms a median hike in 2022, expect volatility and DXY to surge towards and beyond 93.72. The next long-term resistance sits at 94.30.

On the flip side, no hawkish shift in the dot plot should see the greenback come under pressure and trade back in the mid-month range around 92.50. The 50-day SMA sits at 92.71 for additional support.