What a difference a week (or in this case, a single CPI report) can make.
Last week we were bullish on the dollar index due to the cluster of support levels nearby, and expectations for inflation to exceed estimates. Clearly, the fundamentals of a much softer CPI report made minced meat of the support zone and sent the dollar index lower, during its worst week since the pandemic. Yet there are signs that momentum is waning and DXY may be due a bounce.
It should also be remembered that the Fed are nowhere near this famous 'pivot', and that the Fed will continue to hike rates whilst the economy can withstand it. And retail sales suggest the consumers think they can withstand higher rates, at least for now.
DXY daily chart:
The US dollar may be approaching a swing low and ticks a few boxes for a potential inflection point. Downside momentum has slowed, a bullish hammer formed on Tuesday and a small inside bar occurred yesterday. Furthermore, it is holding comfortably above the August low and a bullish divergence has formed on the RSI (2). For now, it is a case of seeing whether it can hold above yesterday's low (105.32) and reverse higher, or whether it has one more attempt at testing the August low.
Given the magnitude of its losses, mean reversion (higher) seems more likely over the near-term, with potential targets including the weekly pivot point ~108, or the 109.50 area should US data remain firm and Fed members remain hawkish.
Last week we were bullish on the dollar index due to the cluster of support levels nearby, and expectations for inflation to exceed estimates. Clearly, the fundamentals of a much softer CPI report made minced meat of the support zone and sent the dollar index lower, during its worst week since the pandemic. Yet there are signs that momentum is waning and DXY may be due a bounce.
It should also be remembered that the Fed are nowhere near this famous 'pivot', and that the Fed will continue to hike rates whilst the economy can withstand it. And retail sales suggest the consumers think they can withstand higher rates, at least for now.
DXY daily chart:
The US dollar may be approaching a swing low and ticks a few boxes for a potential inflection point. Downside momentum has slowed, a bullish hammer formed on Tuesday and a small inside bar occurred yesterday. Furthermore, it is holding comfortably above the August low and a bullish divergence has formed on the RSI (2). For now, it is a case of seeing whether it can hold above yesterday's low (105.32) and reverse higher, or whether it has one more attempt at testing the August low.
Given the magnitude of its losses, mean reversion (higher) seems more likely over the near-term, with potential targets including the weekly pivot point ~108, or the 109.50 area should US data remain firm and Fed members remain hawkish.
