US Dollar Index stays depressed near 96.50 ahead of Payrolls

• DXY debilitates further and approaches 96.50 on Friday.
• Speculations of further easing by the Fed keep weighing on USD.
• Non-farm Payrolls, Fedspeak to keep the attention on the dollar.

The greenback remains well on the defensive so far this week and is dragging the US Dollar Index (DXY) to fresh multi-week lows in the mid-96.00s.

US Dollar Index weaker on Fed, looks to data

The index has accelerated the downside in the last couple of sessions pari passu with increasing speculations of another 50 bps interest rate cut by the Federal Reserve at its meeting on March 17-18.

In fact, and tracked by CME Group’s FedWatch Tool, there is 81% probability of another 50 bps rate cut later in the month.

In the meantime, concerns regarding the economic impact of the fast-spreading coronavirus remain well in place and keep hurting the buck and putting US yields under extra downside pressure. It is worth recalling that yields of the US 10-year note are navigating the area of 0.81% at the time of writing, fresh all-time low.

Later in the NA session, February’s Non-farm Payrolls will be the salient event. In addition, Chicago Fed C.Evans (2021 voter, hawkish), Cleveland Fed L.Mester (voter, hawkish), St.Louis Fed J.Bullard (2022 voter, dovish), New York Fed J.Williams (permanent voter, centrist) and Boston Fed E.Rosengren (2022 voter, hawkish) will all speak at the Shadow Committee event.

What to look for around USD

The index remains well on the defensive in the mid-96.00s at the end of the week, challenging the area of 4-month lows. The dollar came under renewed and strong selling pressure following the breach of the 200-day SMA around 97.80 and in response to rising bets on another Fed move on rates at the March meeting. In the meantime, developments from the coronavirus continue to drive the sentiment in the global markets, while investors’ attention is now on the upcoming FOMC meeting (March 17-18) and the probability of extra easing after Tuesday’s exceptional 50 bps interest rate cut.

US Dollar Index relevant levels

At the moment, the index is losing 0.05% at 96.55 and faces the next support at 96.42 (2020 low Jan.2) seconded by 96.36 (monthly Dec.31 2019) and then 95.84 (monthly low Jun.25 2019). On the upside, a break above 97.17 (78.6% Fibo retracement of the 2020 rally) would aim for 97.81 (200-day SMA) and finally 98.19 (monthly high Jan.29).