DXY: FOMC tonight - OCBC

US Dollar (USD) rebounded as markets grapple a challenging environment of higher oil prices and falling equities amid ongoing geopolitical uncertainties. DXY was last at 98.64, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Mild bearish momentum on daily chart has faded

"Meanwhile, a line-up of key central bank decisions this week, including FOMC tonight (2am SGT) should also see further adjustment in positions. Before the FOMC decision, several key U.S. economic indicators will be released, including building permits and housing starts. Additionally, initial jobless claims and continuing claims data have been moved up to tonight due to the closure of U.S. markets tomorrow in observance of the Juneteenth holiday."

"While FOMC is expected to keep policy rate status quo, focus is on the dot plot and press conference. Markets anticipate dot plot to still point to 2 cuts by year-end. If the Fed signals only one cut or pushes back on easing expectations, the USD could strengthen further. On the other hand, a more dovish tone could lead to USD selling. Elsewhere, oil prices may continue to rise if geopolitical tensions escalate. This may dampen the momentum in AxJs. Net oil importing AxJs such as INR, KRW, TWD and THB maybe be affected more than other AxJs."

Nonetheless, geopolitical development remains fluid and requires further monitoring. De-escalation would likely weigh on the dollar and bring support back to risk proxies but if tensions worsen, high-beta FX such as AUD and NZD may trade on the back foot. Mild bearish momentum on daily chart faded while rise in RSI shows signs of moderation. Resistance at 99 levels (21 DMA), 99.60 levels (50 DMA). Support at 98, 97.60 (recent low).