US Dollar tests for support with risk appetite returning

• The US Dollar trades near pivotal levels on Thursday. 
• Markets are easing back earlier rate cuts and channel back to June or May. 
• The US Dollar Index could dip to 104 before finding ample support. 

The US Dollar (USD) is further trimming its weekly gains, which got booked on Tuesday in the aftermath of the red hot inflation report. Several analysts and economists were quick to write off the report as a one-off, with even US Federal Reserve member Austan Goolsbee saying that markets should not take into account only this Consumer Price Index (CPI) number. The disinflationary pathway to rate cuts is still very much intact and a cut is on the horizon.

On the economic data front,there is  a chunky batch of data with all eyes on Retail Sales. Next to that some lighter data in the form of Industrial Production and Import/Export Prices that could give more support to this idea that disinflation is still there and the recent CPI was just a blip on the radar. To round it all off,  Fed member Christopher Waller will speak at the end of this Thursday. 

Daily digest market movers: Price Index components can confirm Goolsbee

• The first big batch of data is to be released at 13:30 GMT:
• Retail Sales for January:
  • Monthly Retail Sales expected to contract by 0.1% after a 0.6% increase in the previous month.
  • Monthly Retail Sales without cars are seen rising by  0.2% after a 0.4% expansion in December.
  • As always with Retail Sales, the revisions will be more important than the actual numbers.
• NY Empire State Manufacturing Index for February is expected to head from -43.7 to -15.
• The Philadelphia Fed Manufacturing Survey for February is seen heading from -10.6 to -8.
• The Import/Export Price Index for January is due as well:
  • The Monthly Import Price Index is seen unchanged at 0%.
  • The Yearly Import Price Index contracted 1.6% in December with no forecast.
  • The Monthly Export Price Index is expected to fall 0.1%.
  • The Yearly Export Price Index dropped by 3.2% in the previous month, no forecast available.
• Weekly Jobless Claims are due as well:
  • Initial Claims Previous was at 218,000 with 220,000 expected.
  • Continuing Jobless Claims are seen heading from 1.871 million to 1.88 million.
• Industrial Production for January is expected to rise 0.3% after a 0.3% increase around 14:15 GMT.
• A mixed bag of data to be published at 15:00 GMT with the December Business Inventories seen heading from -0.1% to 0.4%.
• US Federal Reserve Board Member Christopher Waller will drop some comments around 18:15 GMT. 
• The US Treasury Department will head to markets to allocate a 4-week bill around 16:30 GMT and a 30-year TIPS auction around 18:00 GMT. 
• Equities are happy with the backtracking on the forward push of rate cuts and are in the green. European equities are up over 0.50%, while US equity futures are mildly in the green. 
• The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 89.5%, while 10.5% for a rate cut. 
• The benchmark 10-year US Treasury Note trades near 4.23%, roughly where it was trading ahead of the inflation report from Tuesday.

US Dollar Index Technical Analysis: Done yet

The US Dollar Index (DXY) is now fully stalling ahead of even a doubtful attempt to reach 105. Traders will need to learn to live with these kinds of small and short-lived moments of volatility until finally one of the big four central banks (Fed, ECB, BoE, BoJ) makes a move with either cutting or hiking. Expect to see a fading DXY, which could fall back to 104 or lower in search of support

Should the US Dollar jump on the back of this Thursday’s data to 105.00, 105.12 as key levels to keep an eye on. One step beyond there comes in at 105.88, the high of November 2023. Ultimately, 107.20 – the high of 2023 – could even come back into scope, but that would be when several inflation measures are coming in higher than expected for several weeks in a row. 

Support should now be provided by the high of last week Monday near 104.59. Further down that 100-day Simple Moving Average looks rather doubtful, near 104.24, so the 200-day SMA near 103.67 looks more solid. Should that give way, look for support from the 55-day SMA near 103.08.