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USD Index wobbles around 103.30 ahead of US inflation

  • The index alternates gains with losses near 103.30 midweek.
  • US yields trade in a mixed fashion ahead of US CPI (Thursday).
  • MBA Mortgage Applications expanded 1.2% WoW.

The greenback, in term of the USD Index (DXY), keeps the range bound theme unchanged around 103.30 on Wednesday.

USD Index focuses on US CPI results

The index maintains a narrow trading range amidst the prevailing cautious stance from market participants, all in light of the upcoming release of US inflation figures gauged by the CPI (Thursday).

Indeed, another weak print in the US consumer prices in December could intensify investors’ perception of a Fed’s pivot in its normalization process and add further conviction of a deceleration in inflation.

So far, and according to CME Group’s FedWatch Tool, the probability of a 25 bps rate raise at the February 1 meeting is at nearly 80% (from around 40% a month ago).

Earlier in the US data space, MBA Mortgage Applications expanded 1.2% n 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 0.06% at 103.21 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).