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US Dollar eases part of its daily agains as investors brace for November CPI figures


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  • DXY Index rose to 104.10 and consolidated above the 20-day SMA.
  • Investors await the release of inflation data on Tuesday, ahead of the Fed’s decision on Wednesday.

The US Dollar (USD) is currently witnessing a strong uptrend, trading at 104.10, bolstered by rising yields and the cooling of dovish bets on the Federal Reserve (Fed) after the release of strong labor market figures last Friday. This week, the US will report November’s Consumer Price Index (CPI) figures, and the Fed meets on Wednesday.

Strong labor market signals and cooling inflation indicate inconsistency in the US economy. Despite these indicators, Federal Reserve officials are leaning toward a cautious stance, warning of further policy tightening. Tuesday’s inflation figures and fresh economic and interest rate projections on Wednesday will be key for markets to continue modeling their expectations of the bank’s next decisions and will set the pace of  US Dollar price dynamics.

Daily Market Movers: US Dollar holds gains, ahead of November’s CPI

  • The US Dollar is trading with gains, boosted by rising yields ahead of an eventful week ahead.
  • On Tuesday, investors will pay close attention to November’s headline and Core Consumer Price Index (CPI). The first one is expected to have decelerated, while the latter remains sticky at 4%.
  • The yields on US bonds are on an upward trend, with rates of 4.75% for the 2-year yield, 4.26% for the 5-year yield, and 4.28% for the 10-year yield. 
  • According to the CME FedWatch Tool, market anticipation indicates no hike for Wednesday’s meeting. However, the markets are pricing in less easing for 2024.  

Technical Analysis: DXY Index bulls step in and regain the 20-day SMA

On the daily chart, the Relative Strength Index (RSI) displays a positive slope in positive territory, reflecting an upward momentum for the Index. The Moving Average Convergence Divergence (MACD) illustratively endorses this bullish narrative, as rising green bars suggest that buying pressure is solidifying.

Considering the Index’s positioning relative to the 20, 100 and 200-day Simple Moving Averages (SMAs), the situation offers further testament to this buyer-dominated environment. Despite being below the 100-day SMA, the index holding firm above both the 20 and 200-day SMA evinces the persistence of the buying force. 

Support levels: 103.70 (20-day SMA), 103.50, 103.30.
Resistance levels: 104.50 (100-day SMA), 104.50, 104.70.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.