- The US Dollar maintains its Monday gains, marking the initial phase of its attempt to recoup losses from the previous week.
- Market reaction to the CPI release was subdued as there was no notable acceleration in disinflation.
- The US Dollar Index is back above the 103.00 mark as it progresses along its path to recovery.
Following the release of the monthly US Consumer Price Index (CPI) figures on Tuesday, the US Dollar (USD) is showing strength across the board. However, despite the release, all numbers seem to have met expectations. Market sentiment, however, reflects disappointment as investors were hoping for a more rapid decline in inflation.
As a result, the likelihood of a rate cut in May seems to be off the table, shifting the focus instead to June and July. Although the US Consumer Price Index (CPI) was largely in line with expectations, the yearly components showed a slight increase. Both the Yearly Core and Yearly Headline CPI rose by 0.1%, reaching the upper end of forecasts for each category.
This slight uptick in inflationary measures has led to some weakness in the US Dollar, with investors scaling back on expectations for an imminent rate cut in May or June.
Daily digest market movers: CPI on track
- The NFIB Business Optimism Index for February was released around 10:00 GMT, showing a slight decrease from the previous reading of 89.9 to 89.4.
- The Consumer Price Index for February is scheduled to be released at 12:30 GMT. The monthly Headline CPI met expectations at 0.4%, up from 0.3% in the previous month. Yearly Headline CPI increased from 3.1% to 3.2%, while the monthly Core CPI remained stable at 0.4%. However, the yearly Core CPI declined from 3.9% to 3.8%.
- At 17:00 GMT, the US Treasury Department will conduct an auction to allocate a 10-year Note.
- Equities are experiencing a rally, with the Nasdaq rising over 1%, leading to gains in all other US indices.
- According to the CME Group’s FedWatch Tool, expectations for a pause in the Federal Reserve’s March 20 meeting are at 97%, with only a 3% chance of a rate cut.
- The benchmark 10-year US Treasury Note is trading around 4.15%, rebounding from this week’s low.
US Dollar Index Technical Analysis: Nothing to see here
The US Dollar Index (DXY) made an attempt at a recovery on Monday, but it still has a considerable distance to cover to reach the levels it held two weeks ago. The upcoming release of the US CPI data is expected to influence the timing of the highly anticipated first rate cut by the Federal Reserve. However, any adjustment in timing may not trigger significant intraday movements, as traders are likely to adjust their portfolios accordingly.
On the upside, the initial hurdles for the DXY lie at 103.31, representing the 55-day Simple Moving Average (SMA), followed by the 200-day SMA around 103.71. Further resistance awaits at the 100-day SMA at 103.74, forming a potential double barrier in that zone. A breakthrough beyond these levels would target 104.96 as a key resistance level.
Currently, the DXY finds itself in a somewhat precarious position, lacking significant nearby support levels. Further downside appears imminent, with 102.00 emerging as the next significant level, holding pivotal importance. Subsequently, a breach below this level could pave the way for another downward leg towards 100.61, the low recorded in 2023.
