- The US Dollar trades weaker across the board after disinflationary CPI release.
- Traders are sending the Greenback lower, ahead of the upcoming Fed meeting.
- The US Dollar index falls below 105.00 and is even heading to the lower 104.00-region.
The US Dollar (USD) sinks lower in the US Consumer Price Index (CPI) aftermath. The move comes with all inflationary elements coming in at the low end of the expectation or even undershooting it. Main element is the monthly headline inflation which fell to 0%, where 0.1% was expected and coming from 0.3%.
On the economic front, all eyes are now on the US Federal Reserve (Fed) which is set to issue its rate decision. The Federal Open Market Committee (FOMC) will need to assess this CPI report in order to determine how they will see their dot plot forecast. That dot plot chart, or Philips curve, will be released as well later this Wednesday.
Daily digest market movers: All eyes on the dot plot now
- At 11:00 GMT, the Mortgage Bankers Association (MBA) has released the Mortgage Applications number for the week ending on June 7. The previous week, a notable decline of 5.2% was printed, with now an uprise of 15.6%.
- At 12:30 GMT, the US Bureau of Labor Statistics has released the US Consumer Price Index for May:
- Monthly core inflation came in at 0.2%, coming from 0.3%.
- Monthly headline inflation went from 0.3% to 0.0%.
- Yearly core inflation went from 3.6% to 3.4%.
- Yearly headline inflation came in a touch softer at 3.3% against 3.4%.
- All data points in the CPI report were either at the lowest estimate or even below it, making it a very soft and disinflationary report.
- Markets will digest the CPI release until 18:00 GMT, when the US Federal Open Market Committee (FOMC) will release its statement on the Federal Reserve’s interest rate decision. As markets have fully priced in an unchanged rate at 5.50%, the dot plot, where all Fed officials get to pencil in their projections and forecasts on how they see monetary policy going forward, will be more important.
- At 18:30 GMT, Fed Chairman Jerome Powell will take the stage and deliver a speech with questions and answers on the recent monetary policy decision.
- Equities are going through the roof with markets now betting again on a rate cut for 2024 from the Fed. All European and US indices are in the green.
- The CME FedWatch Tool shows a 47.4% chance of Fed interest rate at the current level in September. Odds for a 25 basic points rate cut stand at 48.3%, while a very slim 4.3% chance is priced in a 50 basic points rate cut
- The benchmark 10-year US Treasury Note slides to the lowest level for this week, near 4.28%,the lowest level in nearly a month.
US Dollar index Technical Analysis: Will Powell confirm soft landing
The US Dollar index (DXY) is set to either trade another leg higher or to erase all weekly gains with the US CPI and Fed decision as main drivers on Wednesday. Although, one scenario might be playing out which would result in an actual standstill for the US Dollar. That would be if the disinflation is still on track with CPI coming in softer than expected, being contradicted later on with the Fed rate decision where Fed Chairman Jerome Powell could turn hawkish and say that the Fed will need to stay steady for longer in order to really get inflation where they want it to be.
On the upside, there are some technical or pivotal levels to watch out for. The first is 105.52, a level that held support during most of April. The next level to watch is 105.88, which triggered a rejection at the start of May and will likely play its role as resistance again. Further up, the biggest challenge remains at 106.51, the year-to-date high from April 16.
On the downside, a trifecta of Simple Moving Averages (SMA) is now playing as support. First, and very close, is the 55-day SMA at 105.07. A touch lower, near 104.48, both the 100-day and the 200-day SMA are forming a double layer of protection to support any declines in the US Dollar index. Should this area be broken down, look for 104.00 to salvage the situation.
