US dollar gains traction as negative market mood fuels recovery

• The DXY Index trades with gains at 102.50 after dipping to 102.10.
• Markets turns risk-averse on Tuesday, seeking refuge in the US Dollar.
• CPI inflation figures from December are the week’s highlight on Thursday.

The US Dollar (USD) Index trades on an upward trajectory on Tuesday, touching the 102.50 mark and largely buoyed by the prevailing negative market sentiment that is bolstering the demand for the Greenback. Furthermore, investors are keeping a keen eye on the Consumer Price Index (CPI) outcome on Thursday as a potential determinant of the pair's movement for the next sessions.

For now, markets are betting on five rate cuts in 2024, largely dismissing the Federal Reserve (Fed) forecast of only 75 bps of easing. Strong labor market data from the US economy was largely offset by a weak US ISM PMI print, so December’s CPI reading will play a big role in shaping expectations of the central bank’s easing calendar.

Daily digest market movers: US dollar rises on  negative market sentiment, eyes on CPI

• The negative market mood fuels an increase in the demand for the USD as investors turn cautious ahead of CPI figures.
• The December Consumer Price Index is projected to come in at 3.2% YoY, above the previous 3.1%. The core annual reading, however, is expected at 3.8%, easing from 4% in November.
• US bond yields exhibit a mixed behavior, with the 2-year yield at 4.38%, the 5-year yield nearly at 4%, and the 10-year yield hovering a little above 4%.
• The CME FedWatch Tool suggests that the January meeting is expected to maintain rates with low chances of a cut. Markets are now pricing in higher odds of future rate cuts come March and May 2024.

Technical Analysis: DXY Index bulls make another stride and consolidate above the 20-day SMA

The Dollar Index’s Relative Strength Index (RSI) is currently on a positive slope in positive territory, hinting at an energized buying momentum. This is further confirmed by the Moving Average Convergence Divergence (MACD) displaying rising green bars, which reinforce the building's bullish momentum. On the daily chart, the indications are that bulls are gradually reclaiming territory. 

However, turning toward the Simple Moving Averages (SMAs), on a broader scope they provide a slightly contradictory outlook. Though the pair sits consolidated above the 20-day SMA, bolstering the short-term bullish viewpoint, it resides below the 100 and 200-day SMAs. This placement reveals that bears are still in command of the overall trend despite short-term bullishness.

Support levels: 102.30, 102.00 (20-day SMA), 101.80.
Resistance levels: 102.70, 102.90, 103.00.