US Dollar recovers slightly ahead of US CPI test

• The US Dollar holds on to Monday’s gain in a first step to recover last week’s losses.
• All eyes this Tuesday are on the US CPI release for February. 
• The US Dollar Index trades just below 103.00, flirting with a break back above this key level. 

The US Dollar (USD) is trading broadly flat on Tuesday, though the quote board reveals very much a red picture when comparing the Greenbacks performance against its individual peers. All losses are very mild though ahead of the US Consumer Price Index data, which will be released later today. Traders will take the numbers to shape expectations on whether the Federal Reserve (Fed) will start cutting interest rates in May or in June.  

The US Consumer Price Index (CPI) will be the focal point for this Tuesday. Monthly headline inflation is expected to come in at 0.4%, with an estimated range of 0.3% to 0.5%. The Monthly core inflation, which excludes the more-volatile food and energy categories, is expected to come out at 0.3%, with estimates ranging from 0.2% to 0.4%.

Expect ample US Dollar strength to pour in should one or both measures come out above the highest estimation. Of course, in the opposite sense, US Dollar weakness will be seen across the board if both measures snap the lowest estimate and come out much lower than expected. 

Daily digest market movers: Trying to time that Fed cut

• The NFIB Business Optimism Index for February has already been released around 10:00 GMT. Previous number was at 89.9 with the February number coming in xxx (filled in when released).
• The Consumer Price Index for February is to be released at 12:30 GMT:
• Monthly Headline CPI is expected to come in at 0.4% from 0.3% a month earlier.
• Yearly Headline CPI is set to remain stable at 3.1%.
• Monthly Core CPI is seen heading from 0.4% to 0.3%.
• Yearly Core CPI should decline as well from 3.9% to 3.7%.
• At 17:00 GMT, the US Treasury Department will head to markets to allocate a 10-year Note. 
• Equities are sideways with one outlier to notice: The Chinese Hang Seng Index has jumped over 3% near its closing bell. US equity futures are in the green ahead of the CPI print, up 0.50%.
• According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 97%, while chances of a rate cut stand at 3%. 
• The benchmark 10-year US Treasury Note trades around 4.09%, and could snap below 4.00%, should inflation fall substantially. 

US Dollar Index Technical Analysis: Trying to land on time

The US Dollar Index (DXY) has tried to recover a touch on Monday, with still a very long road ahead to come back to levels where it was two weeks ago. The US CPI print is expected to move the needle a bit in terms of timing on the much-anticipated first rate cut from the Fed. However, simply moving the timing by a month means no big intraday moves are to be expected as traders will likely simply tweak their portfolio to the timing of the rate cut. 

On the upside, the first reclaiming ground is at 103.31, the 55-day Simple Moving Average (SMA), and at the 200-day SMA near 103.71. Once broken through, the 100-day SMA is popping up at 103.74, so a bit of a double cap in that region. Depending on the catalyst that pushes the DXY upwards, 104.96 remains the key level on the topside. 

The DXY is trading a bit in nomad's land, with not really any significant support levels nearby. More downside looks inevitable with 102.00 up next, which bears some pivotal relevance. Once through there, the road is open for another leg lower to 100.61, the low of 2023.