Market reaction was largely muted in the FX space as CPI report was in line with expectations, with headline coming in at 2.7% and core holding steady at 3.3%. DXY was last at 106.60. Head and shoulders pattern have formed but DXY has yet to break below the neckline, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“The DXY was firmer but the bullish momentum started in Asia afternoon (well before US CPI report was released) after a Reuters report said that China’s top leaders and policymakers are considering allowing the RMB to weaken in 2025 as they brace for tariffs.”
“DXY received another boost after a report says that BoJ officials see little cost to waiting before raising rates. Focus next on PPI report later tonight before FOMC next week. A 25bp cut is more or less a done deal (markets pricing 98.5% probability of a cut).”
“Bearish momentum on daily chart is fading but rise in RSI moderated. Head and shoulders pattern have formed but DXY has yet to break below the neckline. A decisive break below neckline is required for bears to gather momentum. Support at 106.20/40 levels (23.6% fibo, 21 DMA), 105 levels (38.2% fibo retracement of Sep low to Nov high, 50 DMA) and 104.10 (200 DMA, 50% fibo). Resistance at 106.80 (second shoulder), 107.20 (first shoulder).”
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