Weekly US Dollar Fundamental Forecast: All Eyes On January Fed Meeting

Weekly US Dollar Fundamental Forecast: All Eyes on January Fed Meeting

Fundamental Forecast for the US Dollar: Neutral

  • The DXY Index closed lower on the week for the first time in 2021, but the losses were contained and offered little meaningful technical advance or decline.
  • The upcoming US economic calendar is loaded with 'high-rated' event risk, and this includes the January Fed meeting – which, unfortunately, might not bring much volatility.
  • The IG Client Sentiment Index suggests the US Dollar is on mixed footing ahead of the January Fed meeting.

US Dollar Trading Choppily

The US Dollar (via the DXY Index) broke the uptrend from the early January lows at the start of last week. Meandering price action took hold across USD-pairs, with the DXY Index falling by a mere -0.56% on the week.

The largest component of the DXY Index, EUR/USD, added +0.79%, while the resilient post-Brexit GBP/USD added +0.71%. The lack of a push higher in US Treasury yields may be contributing to the greenback’s lack of enthusiasm, setting it up for another week of choppy trading.

US Economic Calendar Gets Busier

The economic calendar during the final week of January will offer some key insights into the US economy, which appears to have continued its deceleration at the end of Q4’20 (see more below). On the data side of the calendar, there are five ‘high-rated' releases, as well as the medium-ranked weekly initial jobless claims, which have been the ‘canary in the coalmine’ of sorts as a bellwether for the recent slowdown.

Tuesday’s and Friday’s consumer confidence readings, the former of which is the January US Conference Board’s consumer confidence index and the latter of which is the final January US University of Michigan consumer sentiment report, may carry greater impact than normal, even as ‘soft’ data, as we are still in the early stages of an economic rebound.

The Wednesday release of the December US durable goods orders report and the initial Q4’20 US GDP report on Thursday will give traders some ‘hard’ data that will reveal the extent of the deceleration.

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