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The USD Index surged to 103.75, reaching mid-December highs, ahead of the Federal Reserve's (Fed) decision and crucial US labor market data. Market caution prevails, with expectations of a potential Fed rate cut in March, but bets are shifting toward an easing cycle beginning in May if economic resilience persists. The Fed's Wednesday announcement will guide market sentiments, potentially impacting the USD's short-term volatility.

In the daily market digest, investors anticipate the Fed maintaining its policy in the first 2024 meeting, with the short-term trajectory dependent on market abandonment of the expected March easing cycle. Friday's Nonfarm Payrolls release and Thursday's scrutiny of US ISM PMIs for January will influence these expectations. The CME FedWatch Tool suggests a 45% chance of a March cut and a 50% likelihood of the easing cycle starting in May.

Technical analysis reveals a USD Index resurgence, with bullish indicators such as a positive RSI slope and rising MACD green bars. Positioned above the 20-day SMA, the immediate trend favors buyers, while a medium-term bearish bias persists below the 100-day SMA. Despite this, remaining above the 200-day SMA signals an overall bullish trend. In summary, while short-term volatility is possible, the technical environment hints at a return to dominance for DXY buyers, maintaining an overall bullish outlook.
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