USD Index puts 103.00 to the test ahead of US CPI

The index extends the decline and challenges 103.00.
US inflation figures is expected to have retreated further in December.
US yields trade slightly on the defensive on Thursday.

Pablo Piovano FXStreet

The greenback, when tracked by the USD Index (DXY), adds to Wednesday’s tepid losses and pokes with the 103.00 neighbourhood on Thursday.

USD Index looks at US CPI

The index drops for the second session in a row on Thursday and probes the 103.00 support on the back of the generalized flat sentiment in the global assets.

Indeed, prudence prevails among market participants ahead of the release of crucial US inflation figures for the month of December..

These results have grown in importance in past sessions, particularly after the release of the US labour market report on January 6, amidst increasing speculation of a potential pivot in the Fed’s monetary tightening.

Other than the publication of the CPI, weekly Initial Claims are also due as usual along with the Monthly Budget Statement.

What to look for around USD

The dollar remains under pressure and trades in a side-lined fashion near the 103.00 yardstick amidst investors’ prudence and ahead of US CPI due later in the session.

The mixed results from the US Nonfarm Payrolls for the month of December (Friday) seem to have reignited the idea of a probable pivot in the Fed’s policy in the next months, which comes in contrast to the message from the latest FOMC Minutes, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year.

Furthermore, the tight labour market, still elevated inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.03% at 103.22 and the breach of 102.94 (monthly low January 9) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level). On the other hand, the next up barrier comes at 105.63 (monthly high January 6) followed by 106.38 (200-day SMA) and then 107.19 (weekly high November 30).

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

AUD/USD gains traction near 0.7100 as the post-Fed USD rally pauses

AUD/USD finds fresh buyers and retakes 0.7100 in the Asian session on Thursday as the US Dollar pauses its hawkish Fed-inspired rally to its highest level since late July. However, RBA rate-hike bets and hopes for US-Iran diplomatic efforts lift risk sentiment and support the risk-sensitive Australian Dollar and the major.

USD/JPY reverses a dip below 156.00 as focus shifts to BoJ

USD/JPY is reversing a brief dip below 156.00 in the Asian session on Thursday, looking to snap a three-day winning streak to a nearly two-week top set the previous day. The US Dollar pauses following the post-Fed rally to seven-week highs, while a more hawkish repricing of the BoJ's policy normalization path supports the Japanese Yen. This keeps the pair's upside limited, with the focus now shifting to the BoJ policy decision due on Friday.

Gold bounces but not out of the woods yet

Gold is facing fresh sellers above $4,300 early Thursday, stalling its recovery from six-week lows of $4,235 reached soon after hawkish US Federal Reserve monetary policy announcements.

XRP and XLM rebound amid mixed signals

Ripple (XRP) and Stellar (XLM) extend their recovery at the time of writing on Thursday after finding support at key technical levels. However, mixed derivatives and on-chain data for both altcoins suggest that traders remain cautious and have yet to show strong conviction in a sustained rebound. Derivatives data shows a mixed and cautious outlook among traders.

The Fed rate hike: What happens now?

The dust has settled on tonight’s Fed meeting and the market reaction is clear: the Fed’s signal that there could be a series of rate hikes has spooked financial markets. Bonds sold off at the short end of the Treasury curve and US stocks also fell, led by the Dow Jones Industrial Average, which slipped more than 1% on Wednesday night.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.