The US Dollar Currency Index (DXY) took a dip in the early hours of Thursday, continuing its trend from the previous day. This decline coincides with the eagerly awaited approval of spot bitcoin exchange-traded funds, propelling the cryptocurrency to near two-year highs.
Yet, the spotlight now shifts to looming inflation data, holding the potential for significant market shifts in the upcoming session. Currently, the market has factored in around 140 basis points of interest rate cuts in 2024, with the first expected in March, according to the CME FedWatch Tool, assigning a 69% likelihood to this scenario. However, any surprises in the inflation data could swiftly alter these expectations, making the US Dollar responsive to the unfolding developments slated for later today.
Technical
On the 4H chart, the US Dollar experienced a full retracement of a prior breakdown and is now consolidating within a familiar range ahead of the CPI report. The 50-SMA (blue line) has crossed above the 100-SMA (orange line), indicating a bullish tilt to the momentum. However, all could change when the data becomes available later today.
If the report supports the cause for aggressive cuts in the upcoming year, the DXY could shift below the 50-SMA at 102.234 to test the lower support of the consolidation range at 102.061. The Fibonacci midpoint at 101.865 could then come into focus, with the 61.8% Fibonacci golden ratio potentially acting as a pivot point to the breakdown at 101.572.
Conversely, a hawkish surprise could trigger a break above the 25-SMA near 102.393 to test the resistance at 102.655. Should a breakout occur, a new uptrend could form, bringing higher resistance at 102.871 and 103.073 into the picture.
Summary
The US Dollar Currency Index is consolidating within a familiar range ahead of the CPI release later today. There could be significant price action in the US session, as the market remains sensitive to any developments that could alter the course of the Federal Reserve’s monetary policy decisions.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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