US Dollar Index tumbles to lows near 97.70 on poor data

• DXY loses the grip and drops to 97.70.
• US Consumer Confidence recedes to 125.9 in October.
• Focus now shifts to the FOMC meeting tomorrow.

The US Dollar Index (DXY), which gauges the buck vs. a bundle of its main competitors, has reversed the initial optimism and is now sinking to fresh lows in the 97.70 region.

US Dollar Index now looks to the FOMC

The index has managed to regain the vicinity of the 98.00 handle earlier in the session, although the up move was undermined by the pick up in the risk-on trade following positive news from the Brexit front.

Further selling pressure in the Greenback have come in after the key Consumer Confidence tracked by the Conference Board dropped to 125.9 for the current month, also coming in short of expectations. Further bad news came in from the S&P/Case-Shiller Index, expanding 2.0% on a year to August, also missing consensus. Some respite arrived later, after Pending Home Sales expanded more than expected during September.

In the meantime, investors’ attention have now shifted to the key FOMC meeting tomorrow, where traders have already anticipated another 25 bps ‘insurance’ cut. However, the Fed’s forward guidance and its views on the economic outlook are expected to be on top of the agenda in light of the perceived slowdown in some key US fundamentals.

What to look for around USD

The upside momentum in DXY is struggling to advance further in the area just below the 98.00 mark so far this week. Rising optimism on the US-China trade front plus auspicious headlines from the Brexit process have been weighing on the buck in past hours. In the meantime, cautiousness is expected to pick up pace ahead of the FOMC meeting on Wednesday, with market participants expecting another ‘insurance’ cut by the Fed in response to persistent signs that the US economy is running out of steam somewhat. On the broader view, the constructive outlook in DXY looks a bit damaged but it still is in play amidst a divided FOMC vs. a broad-based dovish stance from the rest of the G-10 central banks, the Dollar’s safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is losing 0.02% at 97.72 and faces the initial support at 97.14 (monthly low Oct.18) seconded by 97.03 (monthly low Aug.9) and then 96.67 (low Jul.18). On the upside, a breakout of 97.89 (high Oct.28) would open the door to 98.35 (55-day SMA) and finally 99.25 (high Oct.9).