US Dollar (DXY) news and analysis
- US inflation continues to fight, but a stubborn core inflation reading increases the possibility of a 25bps rally in May.
- DXY looks to test 100 but interesting area around 100.85 may keep dollar afloat in near term
- US PPI and Initial Jobless Claims could add further declines later today
- The analysis in this article is used chart patterns and key Support and resistance levels. For more information visit our comprehensive website Educational library
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Continued recovery from inflation in the United States, but the core of the economy remains flat, which increases the chances of a May rally
Markets seemed to view yesterday’s CPI data with a shortsighted look, choosing only to see the huge progress in the headline print while ignoring the current issue of core inflation. Headline inflation fell a full percentage point in March’s annual reading, but the core actually rose 0.1% over the same comparative time frame – highlighting the difficulty of taming broad-based price pressures.
USD Technical Analysis (DXY)
Markets seemed eager to sell the dollar, especially at a time when the euro seems more favorable. The European Central Bank is considering raising interest rates by 25 or 50 basis points in May, which would support EUR/USD which makes up the majority of the USD basket.
DXY looks on its way to test 101.30 – a level of relevance in April and May last year, as well as February this year. With the market expecting at least one interest rate cut before the end of the year, the dollar remains vulnerable to further declines and may test the psychological level at 100.
However, the dollar has the added advantage of safe-haven attractiveness should instability return in the banking sector or if recession risks increase. The Fed, according to the latest projections, envisions the possibility of a shallow recession in the second half of the year. Resistance is located all the way at 103.00, with 105.63 the next resistance level.
USD Basket Daily Chart (DXY)
Source: TradingView, prepared by Richard Snow
The weekly chart below helps frame the current downtrend in the context of historical price action and helps identify potential long-term support levels. Interestingly, before the 100 level, there is a reasonable amount of support around 100.85 and then another level of support at 99.65.
USD Basket Weekly Chart (DXY)
Source: TradingView, prepared by Richard Snow
The implied path to the fed funds rate points lower
Market expectations have evolved to show the potential for another 25 basis point hike before the supposed cuts take effect later this year, even though the Federal Reserve has suggested there will be no interest rate cuts in 2023. Initial pessimism arose during the turmoil Banking that has calmed down considerably.
Major risk events today
Another measure of inflation, the US Producer Price Index could add to the dollar’s bearish narrative if prices are seen to decline further, and a possible rise in initial jobless claims could also lead to a revision of interest rate expectations, leaving the dollar exposed to more possibilities. the negative side.
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– Posted by Richard Snow for DailyFX.com
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