US Dollar on Watch Today

All eyes are on the US Dollar today as traders brace for the latest set of US inflation readings due this afternoon. Yesterday, Powell told congress that the Fed would hold off on easing rates further until there was fresh progress on inflation. US yields rose yesterday in response to the comments with the market now fully pricing in just one cut this year, down from two in December. While projections have undergone a hawkish shift, USD has remained muted for now with the DXY trading in red through the middle of the week. However, today’s data could easily fuel a fresh rally in the Dollar if we see any upside surprises.

Inflation Forecasts

On the numbers front, the market is looking for headline annualised CPI to hold steady at 2.9% with the monthly headline figure expected to cool to 0.3% from 0.4% prior. Finally, the core monthly reading is set to rise slightly to 0.3% from 0.2% prior. If the data is confined at these levels, market impact is likely to be muted with focus reverting back to US trade policy action. However, if see any upside surprise, this should see traders further scaling back near-term Fed easing expectations, leading USD higher through the back end of the week, particularly if annualised CPI tops 3% again. On the other hand, if we see any downside surprise in today’s data, this should see near-term easing expectations being rebuilt a little, putting further pressure on the Dollar here.

Technical Views

DXY

For now, the index remains in a sideways range between support at 107.24 and resistance at 109.35, following the downside break of the bull channel Given the broader bull trend, while support holds, focus is on an eventual push higher with 110.86 the next bull objective. Below 107.24, however, 105.97 will be the next target for bears ahead of deeper support at 104.59.