US Dollar Index snuggle under Fluid Resistance. DXY consolidation indicates a market that is awaiting the next spark. Keep an eye out for key levels. This week, a large number of Fed officials spoke publicly about the US economy, their expectations for inflation and interest rates, and other topics.
US Dollar pursues composure prior to next Inflation data
It is interesting to note that the Fed did not perceive a positive market reaction to the official Fed statements concluding the two-day Federal Open Market Committee (FOMC) meeting.
The NFP statistics had to be massively better than expected, and the services PMI data had to be extremely optimistic. As of right moment, the market is predicting a peak rate of 5.1%, which corresponds exactly to the value displayed on the Fed’s dot map from December.
US Dollar Markets expect US CPI to be the next Catalyst
As market investors anticipate the release of the US CPI statistics on Tuesday of upcoming week, Confirming The UoM Consumer Sentiment data.
As market investors anticipate the release of the US CPI statistics on Tuesday of upcoming week. It seems without saying that both the apparent and core inflation figures have displayed promising disinflationary velocity. And, the markets delighted at the FOMC statement’s merely citation of this fact.
Stagflation will drive up the USD even more
The pressure on global demand is still there as rising inflation and rising material prices reduce consumer spending capacity and business earnings. The synchronized tightening of fiscal settings around the world also increases the cyclical downturn.
Practically speaking, the United States should stay to be a market with high interest rates, and stocks may remain to draw foreign investors. This indicates that the US is likely to draw investment, which normally benefits the USD.
The Fed’s shift is far off in the distance because of the hot CPI.
The robust CPI only serves to support the idea that the Federal Reserve cannot possibly consider a “pivot” current year. To get a dollar.
Although USD long fatigue was beginning to show, the rise in the USD remains the direction of least resistance. The best scenario for a weaker USD is one of synchronous worldwide growth.
However, that is not present. Other factors, like the Fed’s turn, also look far into the future, such as China abandoning its zero-covid policy or assuaging European energy concerns.
DXY seems likely have gained support at the 50% retrace of the main gain on the technical front. stretching between late 2021 to late 2022 as markets that are looking ahead started to factor in the possibility of rate reduction in the future.
The closing yield spread between the US and euro as the US nears the conclusion of its rate-hike cycle is additional significant factor in the selloff.
As the dollar dropped, the ECB found new reason to move ahead quickly and support the euro. Rate increases often increase the value of local Forex.
With US-Bund Yield Differential on the DXY Weekly Graph
Source: Tradingview
The high from March 2020, around the 103 level, represents the next area of focus. Should the greenback maintain at this level. It would be a fleeting victory considering that present disinflationary patterns indicate we’ll see more positive CPI figure, which would weaken the dollar further.
The 50 simple moving average (SMA), which supported the dollar throughout its ascent and has limited DXY upward potential during its descent.
The 50 simple moving average (SMA), which supported the greenback throughout its ascent and has limited DXY upward potential during its descent.
Price movement over the previous four days has been comfortably below the moving average, where prices are still constrained and stability is taking place before a very significant CPI figure.
Sudden growth indicates an increasing labor supply, declining inflation, and a declining USD.
Pay and inflation will decline if more people keep entering the job force. Because of this, the Fed has room to loosen its stance without having to cool the labor market as more people return to the workforce.
Additionally, income growth is declining and is projected to do so in the future. Consequently, the current state of the market is beneficial since it allows businesses to grow despite having their earnings affected by rising wages.
It implies that there is room for the Fed to ease policy, which would be negative for the US Dollar. A robust US economy helps the rest of the world and boosts rival currencies.
With the previous swings top of 105.60 as further dynamical resistance, the 50 SMA is still there. While the RSI is far from excessive levels.
While the RSI is far from excessive levels. But when the 103 level is broken, support is once more highlighted around 101.30, followed by the crucial 100 mark.
