DXY spikes near 13M highs but restrain at 7-DMA ahead of FOMC

Ahead of today’s FOMC’s meeting for the decision on funds rates, although we could see the choppy range of US dollar index for the day, some sort of bearish sensation is lingering. At present, the large majority of market participants are expecting the FOMC’s plan not to work out. That explains the current USD weakness. After its meeting today the FOMC will send out only a few signals that will convince the market of the contrary. The Fed has been amongst the central banks relying on interest rate normalization for some time.

DXY futures ( US dollar index ) which measure the greenback’s strength against a trade-weighted basket of six major currencies has constantly dipping below SMA , currently at 93.890.

Downswings break below strong support at 94.99, the upswings to restrain below 7SMA.

As the major trend goes into the consolidation phase, you could see constant slumps after bearish engulfing pattern at peaks; the dollar downtrend hits multi-month lows & slide below EMAs. Both leading & lagging oscillators to substantiate. As a result, bears are now on the verge of hitting 13-months lows.

But considering the dollar’s uptrend in major trend, the swings could go in either direction with the major trend goes in consolidation phase or the resumption of the uptrend.

Hence, in order to arrest the potential upswings, we advocate the below recommendation:

Initiate long in 2w ATM +0.51 delta call, and simultaneously buy ATM -0.49 delta put of the same tenor for the net debit.

Well, this options trading strategy that is used on hedging grounds when the options trader ponders that the underlying spot FX prices would experience significant volatility but not sure of the direction of the swings.

The overnight volatility has two readings, which are necessary and complementary to read risk event premiums. The directional purpose is related to the straddle break even, while the volatility purpose is linked to the realized intraday volatility .

Alternatively, contemplating above technical reasoning, on trading perspective, it is advisable to buy boundary binaries on dips upper strikes at 94.20 and lower strikes at 94.45 levels; the strategy is likely to fetch leveraged yields as long as underlying spot FX remains within these strikes on or before the binary expiry duration.
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