US Dollar struggles to build on Friday's gains, floats above 97

The US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, remains in a tight range on Monday, consolidating the gains it recorded in the second half of the previous week. As of writing, the index is at 97.18, down 0.06% on the day.

Following a drop toward the 97 handle, the index found support and started to recover its losses but failed to gather further bullish momentum in the first half of the NA session as the weak performance of the major equity indexes in the U.S. increased the demand for the safer Treasury bonds, pushing their yields down and hurting the demand for the greenback. Although the T-bond yields recovered later in the session, the US Dollar Index failed to take advantage of that.

Today's movement seen in the index seems to be technical in nature as it hadn't been impacted by a fundamental development nor data. Tomorrow's economic calendar will feature NFIB Optimism Index and Producer Price Index from the U.S., but the market reaction could stay limited ahead of Wednesday's important FOMC decision. Although a rate hike seems imminent on Wednesday, investors will look for clues on the possibility of more rate hikes in 2017.

• FOMC preview: Fed should wait before next rate hike - Danske Bank
• Federal Reserve will increase interest rates twice more in 2017 - Bloomberg Survey

Technical levels to consider

97.50 (May 26 high) could be seen as the first near-term resistance ahead of 98 (May 18 high/psychological level) and 98.75 (May 16 high). On the downside, supports could be encountered at 96.80/70 (May 31/23 low), 95.90 (Nov. 11 low) and 95 (psychological level).

• Fed: 25bps hike is almost fully discounted – RBC CM