At the beginning of the week focused on the Consumer Price Index (CPI), the US Dollar (USD) is trading rather quietly. During European trading hours, the US Dollar Index (DXY), which measures the dollar’s strength against six major currencies, is nearly unchanged at around 102.22. The index has stabilized after reaching a yearly high of 102.54 last week.
This week promises to bring noteworthy fluctuations for the US Dollar, with the CPI data for September set to be released on Wednesday. This inflation report is anticipated to significantly influence the Federal Reserve’s (Fed) expectations regarding interest rates.
In a note from analysts at MUFG/BTMU, they mentioned that “the market’s belief that the Fed will maintain the current rates this month will be tested with the upcoming release of the latest US CPI figures for September.” They further noted, “Unless we see a considerable unexpected rise in underlying inflation, we expect the Fed to keep rates steady this month.”
The US CPI report is projected to reveal a rise in headline inflation to 3.7% Year-on-Year (YoY), up from the previous rate of 3.4%. Meanwhile, the core CPI, which omits the more volatile food and energy prices, is forecasted to increase to 2.5% YoY, higher than the last reading of 2.4%.
Technical Analysis of the US Dollar Index
On the daily charts, the Dollar Index Spot is holding at 102.22, indicating a bullish trend in the near term as prices remain above the 20-day exponential moving average (EMA) at 101.35. The distance from this support line signals that the recent increase is likely to continue, although the Relative Strength Index (RSI) at 70.65 suggests it is in overbought territory, implying that while momentum is strong, it may be susceptible to a consolidation phase or pullback.
Looking at potential downturns, the initial support level is found at the 20-day EMA around 101.35. A retreat from this level may attract buying interest, especially if the overall upward trend holds. Conversely, the Dollar Index may embark on another upward movement if it breaks decisively above the yearly high at 102.54.
