US Dollar Index: Dollar index weakened on softer than expected inflation data

US Dollar Index

The dollar index regains traction after suffering losses in past two days, sparked by softer than expected US inflation data for June (CPI, PPI) that cooled expectations for Fed rate hikes.

Wednesday’s break of trendline support (100.40) hit one-month low and generated bearish signal, though the price remained above pivotal 100 support (psychological/Fibo 38.2% of 97.44/101.55) keeping larger bulls alive.

Technical picture on daily chart is mixed (conflicting DMAs/negative momentum/neutral RSI) but fundamentals are still favorable for greenback.

The US economy is in much better condition than other western economies and less exposed to energy shocks that keeps the dollar as currently major safe-haven asset which would benefit from higher energy prices.

Also, upbeat inflation data in June were directly related to the ceasefire in the Middle East and seen as rather temporary phenomenon, as US – Iran conflict escalated again, resulting in closure of strategic Hormuz strait that is likely to fuel inflation again.

This partially offsets risk of dollar’s stronger weakness (especially while the price stays above 100 level), with return and close above broken trendline support, expected to strengthen near-term structure and signal a false break lower.

In such scenario, lift above the trendline would require extension above 20DMA (100.82) to validate positive signal and shift near-term focus higher.

Res: 100.48; 100.82; 101.12; 101.55.
Sup: 100.12; 100.00; 99.50; 99.09.