- The US dollar's weekly losses increased for the third consecutive day.
- Traders are nervous about the upcoming US CPI release.
- The US dollar index (DXY) is testing 109.00 and could fall further on the possibility of a disinflationary CPI release.
The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, is looking tough at 109.00, looking for support ahead of what could be the most important data release of the week. The day comes as all eyes will be on December United States (U.S.) Consumer Price Index (CPI) data to be released on Wednesday after markets were caught up in a weaker-than-expected Producer Price Index (PPI). will be a very data-dependent day. The day before. As a result, we are now leaning toward expectations that future CPI data will be disinflationary and that the Fed may revise the timing of its rate-cutting cycle in 2025.
The US economic calendar therefore revolves around one thing: the US CPI in December. Looking inside, we see that the estimated monthly headline readings range from 0.2% to 0.5%, compared to 0.3% previously. The monthly core reading is a very tight estimate of between 0.2% and 0.3%, compared to 0.3% in November.
Given the narrow expected range of core CPI measurements, numbers outside the range may be the most market movers. A drop below 0.2% will cause a significant depreciation of the US dollar (USD), while a rise above 0.3% will cause the dollar to appreciate.
Daily digest that moves the markets: Future risks
- December US consumer price index data will be released at 13:30 Greenwich Mean Time (GMT).
- The monthly core CPI measure is expected to rise 0.2% compared to 0.3% the previous month. The monthly composite CPI reading is expected to increase steadily by 0.3%.
- The core CPI measure for the year is expected to rise steadily by 3.3%, with the headline measure expected to rise by 2.9% compared to 2.7% in November.
- Federal Reserve Bank of Chicago President Austan Goolsby will discuss the economy at the Wisconsin Bankers Association's 2025 Midwest Economic Forecast Forum at 2:00 p.m. Japan time.
- Minneapolis Fed President Neel Kashkari delivers welcome remarks and joins CHS President and CEO Jay Debatin at 3:00 GMT as part of the Minneapolis Fed's 2025 Regional Economic Affairs Conference Participate in the meeting.
- At 16:00 GMT, New York Fed President John Williams will deliver a keynote speech at the CBIA Economic Summit and Outlook 2025, an event hosted by the Connecticut Institute of Commerce and Industry (CBIA) in Connecticut.
- Stocks were up slightly on Wednesday as traders awaited the release of the US CPI.
- The CME FedWatch tool projects a 97.3% chance that interest rates will remain unchanged at current levels at the January meeting. After President-elect Donald Trump takes office on January 20, the Federal Reserve is expected to continue relying on data due to uncertainties that could affect the path of inflation.
- US yields have fallen significantly. As of writing on Wednesday, the 10-year benchmark was trading around 4.761%, down from Monday's 14-month high of 4.802%.
US dollar index technical analysis: CPI determines direction for next week
The US dollar index (DXY) has become volatile and the Federal Reserve has to thank for this. With little to no substantive guidance from Fed officials, the market should treat each data point as an assessment that the Fed will likely start raising interest rates this year. It is quite normal to see peaks in volatility as DXY moves across the chart as we move from one data point to the next.
On the upside, the psychological level of 110.00 remains the key resistance to win. The next big upside level to reach before moving higher remains at 110.79. If it exceeds that point, it will be a long way from reaching the double top of 113.91 in October 2022.
On the downside, DXY is testing the uptrend line from December 2023, and the support line is currently around 108.95. In case of further decline, the next support is at 107.35. On a further decline, the next level where the selling pressure could end is 106.52, with interim support at the 55-day simple moving average (SMA) of 107.01.
US dollar index: daily chart
