US Dollar Softens Ahead of US CPI as Markets Look for DXY Index Direction

US Dollar, DXY Index, US Dollar, US CPI, Fed, China, Crude Oil, Gold – Talking Points

• the U.S. dollar Take a step back today with all eyes on us CPI Later
• Stock markets are also rather fragile and are on the cutting edge of data
• If the inflation outcome is out of expectations, will the DXY break through?

The US dollar drifted lower on Wednesday ahead of the release of important US CPI data which could provide the impetus for the market to re-expose. A Bloomberg survey of economists expects a headline year-over-year reading of 5.0% through the end of April.

The US debt ceiling and issues regarding US regional banks continue to weigh on market sentiment as Wall Street ended the monetary session lower.

All major stock indices in the Asia-Pacific region are in the red although Japan’s TOPIX is still near 33-year highs.

Yesterday saw NY Fed Chair John Williams reaffirm the Fed’s view that future decisions of the FOMC will be data driven.

Treasuries barely moved today, while gold is up a bit and crude oil is down a bit. The WTI futures contract is close to $73 while the Brent contract is just under $77.

China has continued to expand its crackdown on foreign companies it believes are involved in espionage activities. Diplomatic relations between the Middle Kingdom and Canada saw the expulsion of a Canadian diplomat from Shanghai. The stability of the USD / CAD pair below 1.3400.

While German CPI and Italian Industrial Production may receive some attention, the US CPI will be the main economic data today.

The full economic calendar can be viewed here.

DXY (US Dollar) indicator technical analysis

The US dollar’s volatility is sloped lower as indicated by the narrowing of the Bollinger Bands which is based on the 21-day simple moving average (SMA).

Sideways price action has created a range trading environment, and a clean breakout on both sides could show momentum in this direction.

It is important to keep in mind that the current market conditions have seen many false breaks. This is when the price makes a new high or low outside of the current range trading range but fails to close outside of its range.

Support could be at the previous lows of 101.03, 101.01, 100.82 and 100.79. On the upside, resistance could appear at the previous peaks of 102.40, 102.81 and 103.06.

Chart created in TradingView

– By Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @tweet on Twitter