US Dollar mixed as this week is all about US inflation

• The Greenback retreats a touch and starts the week on the backfoot.
• Traders will keep their powder dry for Wednesday and Thursday.
• The US Dollar Index is expected not to make any big moves with a light Monday calendar. 

The US Dollar (USD) is easing a touch, with the Australian Dollar (AUD/USD) and the Polish Zloty (USD/PLN) as biggest winners against the Greenback. Markets experience a very calm start to the week with traders keeping their powder dry as this Monday holds no important data events whatsoever when it comes to the US macroeconomic agenda. Traders rather will try to assess and preposition towards Thursday and Friday. 

On the economic data front traders will be using today’s empty docket to  assess the uptick in Friday’s University of Michigan expectations regarding the inflation outlook, and assess if the US Consumer Price Index on Wednesday and the Producer Price Index on Thursday will already reflect that assumption of an uptick in inflationary pressures. 

Seeing from the very choppy and nervous price action on Friday on the back of the Michigan numbers, traders are best to brace for a very nervous and volatile week in the Greenback and in the US Dollar Index. 

Daily digest: US Dollar easing ahead of fireworks

• China is weighing unfreezing Boeing 737 orders. 
• European Central Bank Vice-President Luis de Guindos issues says he expects a temporary inflation rebound in the coming months. This falls in line with what US Federal Reserve Chairman Jerome Powell said last week. 
• Reserve Bank of Australia Assistant Governor (Economic) Marion Kohler said that more hikes could be needed in Australia as the RBA rates are not restrictive enough.
• The Pentagon has confirmed that over the weekend it has hit Iran-linked targets in Syria. 
• Equities are still awakening this Monday with the Japanese Topix and Nikkei closing flat. In China the Hang Seng is soaring over 1%, while European and US equities are trading flat for this Monday. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 91.2% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. 
• The benchmark 10-year US Treasury yield trades at 4.65%, and is slowly making its way up again. 

US Dollar Index technical analysis: US Dollar wait-and-see

The US Dollar entered a nervous patch on Friday on the back of the University of Michigan inflation expectations survey showed an uptick in inflation expectations. The data confirmed what Fed Chairman Powell was warning about in his most recent statement last week. If the Fed is right and a rise in inflation is noticed this week in both the Consumer Price Index and Producer Price Index numbers, markets might need to factor in another rate hike, which means some more US Dollar strength to come into the DXY. 

The DXY was looking for support near 105.00, and was able to bounce ahead of it earlier last week. Any shock events in global markets could spark a sudden turnaround and favour safe-haven flows into the US Dollar. A rebound first to 105.85 would make sense, a pivotal level from March 2023. A break above could mean a revisit to near 107.00 and recent peaks printed there.

On the downside, 105.10 is still acting as a line in the sand. Once the DXY slides back below that, a big air pocket is opening up with only 104.00 as the first big level, where the 100-day Simple Moving Average (SMA) can bring some support. Just beneath that, near 103.50, the 200-day SMA should provide similar underpinning.