- The US Dollar extends its weekly losses for the third consecutive day.
- Traders are cautious ahead of the upcoming US CPI release.
- The US Dollar Index (DXY) tests the 109.00 level and could decline further if the CPI shows signs of disinflation.
The US Dollar Index (DXY), which measures the Greenback's value against six major currencies, is struggling at the 109.00 level in search of support ahead of a critical data release this week. All attention is on the upcoming US Consumer Price Index (CPI) data for December, set for release on Wednesday, following a surprise softer-than-expected Producer Price Index (PPI) report the previous day. This has led markets to adjust expectations, now anticipating a disinflationary CPI print, which could prompt a reevaluation of the Federal Reserve's rate cut timeline in 2025.
The US economic calendar is focused on the December CPI, with estimates for the monthly headline reading ranging from 0.2% to 0.5%, compared to the previous 0.3%. The core CPI is expected to range between 0.2% and 0.3%, down from 0.3% in November. Given the narrow range for core CPI, any deviation outside these expectations could significantly impact the market. A reading below 0.2% would likely cause substantial weakness in the US Dollar (USD), while a figure above 0.3% could strengthen the currency.
Daily Digest: Market Movers and Risks Ahead
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At 13:30 GMT, the US Consumer Price Index (CPI) data for December will be released.
- The core CPI is expected to rise 0.2%, down from 0.3% last month.
- The headline CPI is forecast to increase by 0.3%.
- Yearly core CPI is anticipated to rise 3.3%, while the headline CPI is expected to tick up to 2.9% from 2.7% in November.
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At 14:00 GMT, Federal Reserve Bank of Chicago President Austan Goolsbee will discuss the economy at the Wisconsin Bankers Association 2025 Midwest Economic Forecast Forum.
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At 15:00 GMT, Minneapolis Fed President Neel Kashkari will give remarks and participate in a fireside chat with Jay Debertin, CEO of CHS, Inc., at the Minneapolis Fed’s 2025 Regional Economic Conditions Conference.
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At 16:00 GMT, Federal Reserve Bank of New York President John Williams will deliver keynote remarks at the "CBIA Economic Summit and Outlook 2025" in Connecticut.
Market Sentiment
- Equities are slightly in the green, as traders await the US CPI release.
- The CME FedWatch Tool shows a 97.3% probability of the Fed leaving interest rates unchanged at its January meeting. There is anticipation that the Fed will remain data-dependent, with inflationary trends potentially influenced by President-elect Donald Trump's policies starting January 20.
- US yields are softening, with the 10-year benchmark trading around 4.761%, down from a 14-month high of 4.802% earlier this week.
US Dollar Index Technical Analysis: CPI to Set Direction for the Coming Week
The US Dollar Index (DXY) has become increasingly volatile, with much of the movement tied to the Federal Reserve's stance. In the absence of clear guidance from Fed officials, markets are reacting to each data point as they assess where the Fed may move with its policy rates this year. As a result, the DXY experiences frequent fluctuations and heightened volatility.
Upside Levels
- The 110.00 psychological level remains the key resistance point to overcome.
- Beyond that, the next major resistance is at 110.79, followed by a stretch to 113.91, the double top from October 2022.
Downside Levels
- On the downside, the DXY is testing the ascending trend line from December 2023, with support around 108.95.
- If the DXY continues lower, the next support is at 107.35.
- Further down, the 55-day Simple Moving Average (SMA) at 107.01 could provide interim support, while the next key level to halt any significant decline is at 106.52.
