Forex Today: Risk aversion fuels Dollar's rally, inflations data on focus

During the Asian session, Australia will release the Monthly Consumer Price Index, and Japan the Leading Economic Index. The Bank of Japan will publish the minutes of its recent meeting. Later in the day, the US will release the Durable Goods Orders report.

Here is what you need to know on Wednesday, September 27:

The US Dollar Index (DXY) continued its upward trend for the third consecutive day. The rise was primarily driven by risk aversion, resulting in the index posting its highest daily close since November of the previous year, surpassing 106.10.

Despite the negative sentiment, US Treasury yields were not pushed lower, with the 10-year yield remaining around 4.54%. Meanwhile, the Dow Jones declined by 1.15% and the Nasdaq dropped by 1.54%.

US economic data released on Tuesday showed a deterioration in consumer sentiment and a larger-than-expected decline in New Home Sales. On Wednesday, upcoming US data includes the Durable Goods Orders report, while the focus is on consumer inflation figures to be released on Friday.

The deterioration in market sentiment has added fuel to the Dollar's rally, but a correction is overdue, particularly for the Euro and the Pound.

Analysts at Wells Fargo on Consumer Confidence: 

Soft confidence in recent years has not always translated into spending declines partly because consumers were flush with cash and had easy access to affordable credit. But with savings running dry and credit now scarce and costlier, the biggest monthly decline in consumer confidence since 2020 could be more impactful on actual spending.

EUR/USD failed to hold above 1.0600 and hit a fresh monthly low near 1.0560. The bias remains to the downside, with no signs of a correction and technical indicators showing oversold readings. The German Gfk Consumer Confidence Survey is due on Wednesday, and the European Central Bank (ECB) will release monetary base indicators.

GBP/USD consolidates below 1.2200, looking for a new support level. Despite oversold conditions, the path of least resistance remains to the downside. EUR/GBP rose to 0.8700. 

USD/CHF surged above 0.9150, reaching its highest level since April. The Swiss Franc also lost ground against the Euro. The Swiss National Bank (SNB) will release the Q3 Quarterly Bulletin.

USD/JPY rose above 149.00 as the divergence between the Federal Reserve (Fed) and the Bank of Japan (BoJ) continues, and investors appear to have no fears of intervention from Japanese authorities. Japan will release the Leading Economic Index, and the Bank of Japan will publish meeting minutes.

AUD/USD was impacted by negative sentiment and declining commodity prices, causing it to slide below 0.6400 and approach the September lows at 0.6355. The August Monthly Consumer Price Index is due on Wednesday, with a rebound in the annual rate expected from 4.9% to 5.2%.

USD/CAD rose to weekly highs above 1.3500 but remained below the 20-day Simple Moving Average (1.3540). A daily close well below 1.3450 would indicate further weakness ahead.

Gold accelerated its downside momentum, hitting levels below $1,900 for the first time in a month. The yellow metal remains under pressure as US yields stay elevated. Silver also experienced a significant drop below $23.00.