US Dollar Cautious Ahead of CPI

Despite finding renewed backing following the latest jobs data, the US Dollar Currency Index (DXY) is treading cautiously ahead of the US CPI data due tomorrow. On Friday, the Non-Farm Payrolls (NFP) came in at 199K, up from the prior 150K, defying the 180K forecasts, forcing the market to take a step back in its bets for rate cuts occurring in the opening months of next year. 

Accommodating the robust NFP print was the unemployment rate, which contracted from 3.9% to 3.7%, suggesting that the labour market may not be as cool as initially anticipated. However, the US CPI report on Tuesday could give a clearer indication of the state of the US economy, with the market expecting a decline in year-over-year inflation from 3.2% to 3.1%.  


On the 4H chart, an ascending channel is present, while the 50-SMA (blue line) has exceeded the 100-SMA (orange line) in a shift of shorter-term momentum to the upside. However, a psychological supply zone at 104.197 could stand in the way of continuous expansion, making the upcoming sessions increasingly pivotal. 

Should the supply zone hold, the dollar could retreat again, with the 25-SMA (green line) offering support at 103.923. A breach below this level could put the dynamic channel support at risk of a breakdown at 103.861. Should the breakdown occur, the Fibonacci midpoint at 103.446 could come into play, where a pivot may occur for a retest of the initial breakdown point. 

However, if the supply zone at 104.197 fails to keep the buyers at bay, an additional leg up could sustain the channel pattern in the upcoming sessions. Resistance at 104.557 could become a level of interest in the sessions to come as a determining factor as to whether the slope of the uptrend will become steeper.  


After the NFP data last week, another crucial session lies ahead on Tuesday, with the release of the US CPI promising to enforce some directional price action on the DXY. The supply zone at 104.917 could be a level of interest to keep an eye on in the upcoming sessions.  

Sources: Koyfin, Tradingview, Reuters 

Piece written by Tiaan van Aswegen, Trive Financial Market Analyst 

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