US Dollar Price Analysis: DXY fate lies in US CPI

Ross J Burland FXStreet

The US Dollar is sitting in a technical bundle of key structures that has something for both the bulls and bears ahead of the release of US inflation data and the final Federal Reserve meeting of the year.

Traders are looking for signs of a Fed pivot, i.e., for its policy outlook to change course from its currently contractionary (tight) monetary policy to expansionary (loose).

A Fed pivot typically happens when economic conditions have fundamentally changed in such a way that the Fed can no longer continue its prior policy stance and the US Consumer Price Inflation data is used as a primary gauge in that respect. In fact, the DXY's biggest daily drop and second-largest daily gain in 2022 have come on the back of prior CPI data.

The Fed is widely expected to hike the funds rate by 50 basis points (bp) on Wednesday, after four consecutive 75 bp hikes. If the data comes in hotter than expected, this will be problematic for the Fed eager to slow the pace of tightening and potentially weigh on risk assets and thus lead to a stronger US Dollar.

The headline is expected at 7.3% YoY vs. 7.7% in October, while the core is expected at 6.1% YoY vs. 6.3% in October. Last week, the Producer Price Index came in higher than expected, raising concerns that inflation is likely to prove to be much stickier than the markets are pricing.

DXY technical analysis

The trendline was broken and the bulls are on the back side of it. If the data comes in hot, a move beyond the 50% mean reversion resistance near 1.05.65 could spell an upside correction continuation scenario for the near future. On the flip side, 103.00 will be a key target for the remaining weeks of the year should a Fed pivot be priced in even further.

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

GBP/USD hits multi-week tops around 1.3560

GBP/USD gathers fresh steam and advances to new three-month peaks near the 1.3560 zone on Friday. Cable’s sharp move higher comes after three daily drops in a row and follows the increasing selling pressure hurting the Greenback.

EUR/USD pops to fresh two-month highs, targets 1.1600

EUR/USD advances markedly, revisiting the upper 1.1500s for the first time since mid-June. The pair’s sharp uptick comes on the back of a strong retracement in the US Dollar amid BoJ intervention chatter and despite steady uncertainty in the Middle East.

Gold picks up pace, approaches $4,400

Gold rebounds toward the $4,400 mark per troy ounce on Friday, reversing the previous day’s pullback. The precious metal’s recovery comes as fresh and intense weakness keep weighing on the US Dollar, while traders keep assessing easing expectations of an imminent Fed interest rate hike and the situation from the Middle East.

Pi Network Price Forecast: PI extends consolidation as bulls eye $0.10

Pi Network (PI) price holds steady on Friday, maintaining a consolidating tone for three consecutive days. Mild retail strength in the PI token remains stable, with Open Interest above $9 million, while social buzz eases. PI token’s technical outlook is mixed, as bearish momentum wanes to neutral, with bulls eyeing the $0.1000 psychological level.

Weekly focus: Some relief in US inflation concerns

Actual inflation data for July came out as expected with a 0.1% m/m increase in headline CPI and 0.2% excluding food and energy. Annual headline inflation remains too high at 3.4% and means that wage earners are experiencing stagnating spending power at best, and core inflation is a bit higher than the inflation target of two percent would suggest.

Why is Crude Oil priced for a reopening the ships haven't made?

Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.