US Dollar retreats ahead of US CPI inflation print

• The US Dollar is retreating in European trading hours ahead of the US opening bell.
• Investors could keep the powder dry as they await the Fed’s decision on Wednesday.
• The US Dollar Index slides below 104.00 and could ease a bit further. 

The US Dollar (USD) is dropping ahead of the US inflation numbers, which will be released on Tuesday. The weakness throughout the day could reflect traders’ expectations for another substantial downturn in US inflation. Still, it is uncertain that the figures will really move the needle as investors could wait to place bets until the last Federal Reserve (Fed) monetary policy meeting of the year on Wednesday.  

On the economic front, all eyes are on the US Consumer Price Index (CPI). Expect to see substantial moves in case monthly inflation turns negative in November, although this looks unlikely amid the seasonal effects stemming from Black Friday, Thanksgiving and ahead of the New Year. 

Daily Digest Market Movers: CPI data could bring short-term volatility

• All eyes on 13:30 GMT, with US Consumer Price Index release for November:
• Monthly headline inflation is expected to head from 0% to 0.1%.
• Monthly core inflation is expected to head from 0.2% to 0.3%.
• Yearly headline inflation is expected to decline from 3.2% to 3.1%.
• Yearly core inflation is expected to remain steady at 4%.
• Around 18:00 GMT, the US Treasury will allot a 30-year bond auction. 
• Equities are in a wait-and-see pattern ahead of the US CPI numbers, with both European and US equities looking for direction. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 98.4% chance that the Federal Reserve will keep interest rates unchanged at its meeting on Wednesday.  
• The benchmark 10-year US Treasury Note trades near 4.19%.

US Dollar Index Technical Analysis: Pressure is building

The US Dollar is gearing up for the first of two volatile days ahead, with US Consumer Price Index numbers this Tuesday and a Federal Reserve meeting on Wednesday. Expect to see some moves on the back of the US CPI numbers, though nothing substantial, as traders will want to hear from the Fed to see if markets are right in pricing in early rate cuts for 2024, or rather need to push those cuts further down the line. In that last case, the DXY US Dollar Index could jump above 104.00. 

The DXY is retreating a touch, below 104.00, though an uptick in inflation might already move the needle in favor of the US Dollar. The DXY first needs to confirm its upward move by breaking above Friday’s high at 104.26. Once from there, the 100-day Simple Moving Average (SMA) near 104.55 looks very appealing before Wednesday’s Fed meeting. 

To the downside, the 200-day SMA at 103.55 has done a tremendous job in supporting the DXY, with buyers coming in below 103.56 and pushing it back towards that same level near the US closing bell. If it fails this week, the lows of November near 102.46 is the next level to watch. More downside pressure could bring into view the 100.00 marker, particularly if US yields sink below 4%.