US Dollar Index Above Critical Support Ahead of CPI: How to Trade USD/JPY, EUR/USD
Last week, the dollar faced selling pressure, dropping to the 102 level after the employment report.
Despite the nonfarm payrolls data coming in above expectations, concerns about potential interest rate cuts by the Fed in the summer led to a correction in the DXY, as the index reached its lowest level in 7 weeks.
However, after Friday's mixed data, a knee-jerk reaction led to a dollar selloff.
While the stock market also saw some selling pressure, there was a minute uptick in dollar demand which prevented further declines as the US dollar stabilized around 102.7.
Despite last week's employment data pushing the dollar index lower, it managed to find support around the 102 region.
The spotlight for this week is on inflation data, particularly the US CPI data scheduled for release tomorrow.
Fed members have been talking about making decisions based on data, but Chicago Fed's Goolsbee took a dovish stance recently.
He suggests that if inflation inches towards the 2% target, the Fed might start considering cutting rates sooner.
This contributed to a weakened outlook for the dollar. However, the market still doesn't see a rate cut in March and April as likely.
The expected announcement of CPI at 3.1% YoY, consistent with the previous month, and core inflation at 3.7% YoY, down 2 percentage points from last month, might support the Fed's higher-for-longer view.
This could result in fewer rate cuts this year, increasing demand for the dollar.
Technically, the dollar index, which has been on a downward trend for about a month, rising above 102.8 could indicate a pause in the downward trend. The next move might be towards the 103.6 — 104 range.
However, if tomorrow's inflation data aligns with or falls below expectations,
Read more on investing.com
