US Dollar edging higher, testing 97.30

The greenback, in terms of the US Dollar Index, is looking to extend the upbeat momentum at the beginning of the week, currently challenging session tops in the 97.30 region.

US Dollar upside capped near 97.50

Slowly but relentlessly, the index managed to leave behind YDT lows around 96.70 and regain the 97.00 handle and above, helped by dip-buyers and some re-focusing on the prospects of further tightening by the Federal Reserve at its June meeting.

Tracked by CME Group’s FedWatch tool, the probability of a rate hike next month is just above 83%, based on Fed Funds future prices.

Market participants seem to have already digested the FOMC minutes published last Wednesday, where some members of the Committee said they need more evidence that the slowdown seen during the first quarter was temporary, while the Fed should start reducing its balance sheet at some point by year-end.

Adding to the buck’s recovery, Atlanta Fed’s GDPNow is forecasting the economy is expected to expand at an annualized 3.7% during the second quarter.

On the positioning front, USD speculative net longs continued to retreat during the week ended on May 23, this time to levels last seen in early October 2016, as per the latest CFTC report.

US Dollar relevant levels

The index is up 0.01% at 97.34 and a breakout of 97.47 (high May 26) would open the door to 97.97 (high May 18) and finally 98.20 (20-day sma). On the downside, the next support is located at 96.70 (2017 low May 23) followed by 95.91 (low Nov.9 2016) and then 94.95 (low Sep.22 2016).