US Dollar eases below 97 as investors gear up for FOMC meeting

Following a couple of failed attempts to break below the 97 handle during the day, The US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, couldn't gather a recovery momentum ahead of tomorrow's important FOMC meeting decisions and eased toward its session lows in the U.S. afternoon. As of writing, the index is at 96.95, down 0.21% on the day.

As widely expected, the index remains in a tight range, largely ignoring the macroeconomic data. The Producer Price Index in the U.S. remained unchanged on a monthly basis in May and eased to 2.4% from 2.5% on a yearly basis but beat the market consensus of 2.3%.

• US: Producer Price Index for final demand was unchanged in May

Ahead of the FOMC decisions and the Fed's Chairwoman Yellen's speech, retail sales and consumer inflation data from the U.S. will be released. The market expects the CPI to fall to 2% in May on a yearly basis from 2.2% in April. Although the Fed uses the core PCE price index as its primary gauge of inflation, a higher than expected CPI reading could ramp up the expectations for a hawkish statement and help the greenback gain strength against its rivals.

• Fed: Market prices a 25bp rate hike - SocGen
• FOMC preview: Fed should wait before next rate hike - Danske Bank
• FOMC widely expected to bring a 25 bp hike in the Federal funds rate - Rabobank
• Fed: 25bps hike is almost fully discounted – RBC CM

Technical outlook

The index could face the initial hurdle at 97.50 (May 26 high) ahead of 98 (May 18 high/psychological level) and 98.75 (May 16 high). On the downside, supports align at 96.80/70 (May 31/23 low), 95.90 (Nov. 11 low) and 95 (psychological level).