US Dollar declines ahead of September inflation figures, Fed speakers

• US Dollar continues consolidating early October gains.
• Inflation in the United States is expected to have decelerated in September.
• Christopher Waller and Neel Kashkari will be on the wires.

The US Dollar (USD) measured by the US Dollar DXY Index trades with losses despite US Treasury yields recovering and a cautious market mood amid the Middle East geopolitical conflict between Israel and the Hamas terrorist group. Investor’s focus is set on Wednesday’s Federal Open Market Committee (FOMC) from the September meeting and the Consumer Price Index (CPI) from the same month.

In the meantime, the United States economy still shows signs of not cooling down as September’s Nonfarm Payrolls (NFP) showed that job creation accelerated while unemployment rose and wage inflation declined. In addition, Manufacturing PMIs came in better than expected and contributed to investors placing hawkish bets on the Federal Reserve (Fed), which took the DXY index to multi-month highs above 107.00. For the rest of the session, investors will look for clues on the next Federal Reserve (Fed) movements on the Christopher Waller and Neel Kashkari speeches later in the session.

Daily Digest Market Movers: US Dollar consolidates last week’s rally; resilient US economy and Middle East geopolitical tensions could reignite its bullish momentum

• The US Dollar DXY index continues consolidating and declining towards 105.70, tallying more than 1% losses in October after peaking at 107.35.
• September Nonfarm Payroll (NFP) came in at 336,000, higher than the 170,000 expected and the previous 270,000. Unemployment rose to 3.8%, and Average Hourly Earnings decelerated to 4.2%.
• US S&P Manufacturing PMI from September came in at 49.2, higher than the expected previous 48.9.
• The ISM Manufacturing PMI rose to 49 vs the expected 47.7 and the previous 47.6.
• All in all, economic activity is showing resilience, and as the labour market is not cooling down, the Federal Reserve Officials (Fed) may consider one more rate hike.
• On Monday, Lorie Logan from the Fed stated that higher bond yields and restrictive financial conditions would mean “less need” for the central bank to continue hiking.
• Christopher Waller and Neel Kashkari from the Fed will be on the wires later in the session, where investors will look for clues regarding forward guidance.
• The minutes from September’s meeting of the Federal Open Market Committee (FOMC) are due on Wednesday, and the Consumer Price Index (CPI) figures from the same month are due on Thursday.

Technical analysis: US Dollar Index slides to 105.70 below the 20-day SMA

The US Dollar Index DXY sees a neutral-to-bearish technical outlook for the short term. The Relative Strength Index (RSI) displays a negative slope near the 50 middle-point while the Moving Average Convergence Divergence (MACD) stands in negative territory, indicating that the bears hold the upper hand in the short term.

That being said, the index is comfortably above the 100 and 200-day Simple Moving Averages (SMA), indicating that the bulls command the broader scale. If they fail to defend the 20-day average at 105.90, more downside may be on the horizon, with support lining up at 105.50, 105.30 and 105.00.