US Dollar Index appears supported near 95.50 ahead of CPI
|- DXY looks depressed around the mid-95.00s midweek.
- US 10y yields remain capped by the 1.80% area.
- Inflation figures tracked by the CPI next of note in the docket.
The greenback, in terms of the US Dollar Index (DXY), is struggling for direction at the lower end of the current range near 95.50.
US Dollar Index now looks to CPI
Following the Powell-led sharp selloff on Tuesday, the index is now attempting to regain some composure and put some distance between itself and the area around its recent lows.
It is worth recalling that the buck intensified its downtrend on Tuesday after Chief J.Powell ruled out any immediate action to reduce the balance sheet at his testimony before the Senate Banking Committee. The FOMC chair added that the Fed might take between two and four meetings to make such a decision. Powell also suggested the existence of risks that inflation could get entrenched and stressed that supply chain disruptions are behind the inflation pressures.
While the dollar accelerated its losses in the wake of Powell’s testimony, US yields kept the steady performance near recent highs, showing some lack of conviction to extend the move further north for the time being.
The publication of December inflation figures gauged by the CPI will be the salient event later in the NA session. Previously, MBA will release weekly figures of Mortgage Applications and Minneapolis Fed N.Kashkari (2023 voter, dovish) is due to speak.
What to look for around USD
The index dropped and recorded new 2022 lows near 95.50 following Powell’s testimony on Tuesday, where it is now looking to consolidate ahead of the release of the December CPI. In the meantime, the dollar seems somewhat decoupled from the recent strong rebound in US yields in contrast with the steady price action of past sessions. In the meantime, the constructive outlook for the buck is seen underpinned by the Fed’s intentions to start the hiking cycle earlier than anticipated amidst persevering elevated inflation, supportive Fedspeak, higher yields and the solid performance of the US economy.
Key events in the US this week: December CPI (Wednesday) - Initial Claims, FOMC L.Brainard Testimony, Producer Prices (Thursday) - Retail Sales, Industrial Production, Flash Consumer Sentiment, Business Inventories (Friday).
Eminent issues on the back burner: Start of the Fed’s tightening cycle. US-China trade conflict under the Biden administration. Debt ceiling issues. Potential geopolitical effervescence vs. Russia and China.
US Dollar Index relevant levels
Now, the index is gaining 0.05% at 95.63 and a break above 96.46 (weekly top Jan.4) would open the door to 96.90 (weekly high Dec.15) and finally 96.93 (2021 high Nov.24). On the flip side, the next down barrier emerges at 95.53 (2022 low Jan.12) seconded by 95.51 (weekly low Nov.30 2021) and then 94.96 (low Nov.15 2021).
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