• The DXY is trading inconclusive below the 94.00 level.
• US yields are trading on the defensive during Tuesday’s rally.
• IBD / TIPP index, next API report on screen in US calendar.

The greenback, in terms of US Dollar Index (DXY), reverses the negative month start and hovers around the 93.90 region on Tuesday.

US dollar index cautious ahead of FOMC event

The index sails slightly into positive territory on Tuesday amid declining US yields and a widespread lack of direction in risk appetite trends.

Indeed, the US spot markets see yields in the front and belly of the curve extending the recent decline to the 0.48% area and the 1.55% area, respectively; while the long game builds on recent gains and approaches 1.97%.

In the meantime, the dollar is expected to trade amid increasing caution ahead of the key FOMC event later in the week. Indeed, the consensus sees the Committee announcing the start of the reduction process in November and at a probable rate of $ 15 billion per month.

Later in the US data space, the IBD / TIPP Economic Optimism Index is expected to be backed up by API’s weekly US Crude Oil Supply Report.

What to look for around USD

Friday’s rise in the dollar catapulted the index above the key barrier at 94.00, although Tuesday’s sell bias saw some of that movement erode. Going forward, the next FOMC event is likely to dictate price action around the dollar in the very near term, at least amid firm expectations for an announcement to begin the process of reducing QE. In addition, the price action surrounding the greenback is closely following US yields and the current rise in high inflation, as well as the views of Fed rate setters regarding the likelihood that high prices will persist longer, throughout the performance of the economic recovery. against a backdrop of relentless supply disruptions and an equally relentless increase in coronavirus cases.

Key events in the United States this week: Factory orders, non-manufacturing ISM, ADP report, FOMC meeting (Wednesday) – Trade balance, initial demands (Thursday) – Non-farm payroll, unemployment rate (Friday).

Prominent problems on the rear boiler: Discussions around Biden’s multi-billion Build Back Better plan. US-Chinese trade conflict under the Biden administration. Decrease in speculation vs economic recovery. Debate on the debt ceiling. Geopolitical risks linked to Afghanistan.

Relevant levels of the US dollar index

Now the index is gaining 0.05% to 93.92 and a break above 94.30 (October 29 weekly high) would open the door to 94.56 (2021 October 12 high) and then to 94.74 (September 24, 2020 high). On the other hand, the next downward barrier emerges at 93.27 (October 28 monthly low), followed by 92.98 (September 23 weekly low) and finally 92.93 (100 day SMA).