The US dollar index pulled back ahead of the upcoming US consumer price index data and Federal Reserve minutes scheduled for Wednesday this week. DXY index was trading at $102.11, a few points above the year-to-date low of $100.82.
US consumer inflation data ahead
The US dollar index has been under intense pressure in the past few days ahead of the upcoming US inflation data. Economists polled by Reuters expect the data to show that the headline CPI declined from 0.4% in February to 0.2% in March. On a year-on-year basis, analysts believe that the CPI dropped from 6.0% to 5.2%.
Data published by Adobe on Monday showed that online inflation continued dropping in March and hit the lowest level in more than 7 months. This drop happened as the cost of goods like furniture and appliances retreated amid rising competition and elevated inflation.
Core inflation, which excludes the volatile food and energy prices, is expected to come in at 0.4%, down from the previous 0.5%. On a year-on-year basis, this CPI is expected to rise to 5.6%.
The Fed is monitoring inflation closely as it considers what to do in the next meetings. In a statement on Tuesday, Fed’s Patrick Harker said that the bank will likely hike interest rates by 0.25% in May and then maintain its data dependence. If the inflation reading comes out hotter than expected, it will confirm this view.
The next important US dollar news is the upcoming Federal Reserve minutes that will come out during the American session. These minutes will provide more information about what happened in the last meeting when the committee decided to hike rates by 0.25%. They will also provide hints about what to expect in the coming meetings.
The other important catalyst for the DXY index will be the upcoming bank earnings season that kicks off on Friday. These results will also provide more hints about what to expect from the Fed.
US dollar index technical analysis
The daily chart shows that the DXY index has been in a strong bearish trend in the past few months. In this period, it has slumped from last year’s high of $114.7 to the current $102, a ~10% decline. It has moved below the 50-day moving average and the Woodie pivot point. It is also approaching the important support level at $100.73, the lowest level this year.
Therefore, the index will likely retest this support after the US inflation data. A drop below that level will signal that sellers have prevailer, which will open it up to dropping below the support at $100.
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