US Dollar Index looks for direction near 97.50

• DXY cuts losses and retakes the 97.50 area, where is consolidating now.
• Speculations on a Fed rate cut this month keep running high.
• The weekly report on US supplies by the API is only due later.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main rivals, has managed to regain some buying interest and is now hovering around the 97.50 region.

US Dollar Index weaker below the 200-day SMA

Despite the ongoing rebound, the index remains well on the defensive for the second consecutive week so far amidst increasing bets that the Federal Reserve could reduce the Fed Funds Target Range (FFTR) by 25/50 bps at this month’s meeting.

In fact, and according to FedWatch Tool from CME Group, the probability of a 50 bps rate cut at the March 17-18 meeting is now at 100% (from 0% a week ago).

In the meantime, the dollar remains under pressure and vigilant after the G7 said it will continue to monitor the developments from the coronavirus, ruling out for the moment the implementation of fiscal stimulus in order to aid the world economy.

Nothing worth mentioning in the US docket on Tuesday other than the weekly report by the API on US crude oil inventories. On Wednesday, the ADP report will inform of the job creation in the US private sector during February while the ISM Non-Manufacturing will shed light on how the services sector fared during last month.

What to look for around USD

The index has accelerated the downside to the vicinity of the 97.00 mark on Monday, recording at the same time fresh multi-week lows and fading further the 2020 rally (currently close to the 78.6% Fibo of that move). The outlook on the dollar is now neutral to bearish, particularly after breaking below the key 200-day SMA, today at 97.83. Investors’ attention is now on the increasing likeliness of further easing by the Fed amidst coronavirus concerns and despite the resilience observed in the US economy. That said, and despite the outlook on the buck now looks compromised, its stance still appears constructive and propped up by the “good shape” of the domesticeconomy, the buck’s safe haven appeal and its status of “global reserve currency”.

US Dollar Index relevant levels

At the moment, the index is retreating 0.02% at 97.49 and faces the next support at 97.18 (weekly/monthly low Mar.2) seconded by 96.74 (low Dec.12 2019) and then 96.53 (monthly low Dec.31 2019). On the flip side, a breakout of 97.84 (200-day SMA) would aim for 98.54 (monthly high Nov.29 2019) and finally 99.09 (23.6% Fibo retracement of the 2020 rally).