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11 Jan 2023

USD Index looks indecisive just above 103.00, focus on US CPI

  • The index treads water in the low-103.00s on Wednesday.
  • Markets continue to wait for the release of US inflation figures.
  • MBA Mortgage Applications will be the sole data scheduled today.

The greenback extends the consolidative mood above the 103.00 hurdle when tracked by the USD Index (DXY) on Wednesday.

USD Index remains focused on US CPI

The index keeps navigating within a tight range as market participants maintain a cautious stance in light of the upcoming publication of US inflation figures measured by the CPI for the month of December on Thursday.

The release of the December CPI has been growing in importance as of late against the backdrop of rising speculation of a pivot in the Fed’s monetary policy stance, which has been reignited following the latest US labour market report released last Friday.

Later in the NA session, the only results in the docket will be the weekly MBA Mortgage Applications in the week to January 6.

What to look for around USD

The dollar remains under pressure and trades in a side-lined fashion in the 103.00 region amidst investors’ prudence ahead of US CPI due on Thursday.

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: MBA Mortgage Applications (Wednesday) – 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 0.10% at 103.17 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 106.37 (200-day SMA) and then 107.19 (weekly high November 30).

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