US Dollar trades neutrally as CPI data looms, Treasury yields decline

• The DXY Index is neutral at 104.12 and manages to clear daily losses.
• All eyes are set on Wednesday's US CPI figures for March.
• The outcome of the inflation figures will set the tone of the market’s bets on the Fed.

The US Dollar Index (DXY) is currently trading at 104.12, remaining rather neutral. Markets stand largely quiet as the week's highlight is the release of March’s US Consumer Price Index (CPI) figures on Wednesday. In the meantime, declining US Treasury yields seem to be weakening the US Dollar, and minor data releases have failed to trigger a significant reaction.

The data will continue fueling expectations for the Fed's easing cycle and as for now is seen starting in June. Amid two months of high inflation, the Fed revised its projections upward, but Jerome Powell confirmed a complacent attitude toward these figures. Consequently, the US Dollar remains in suspense, awaiting potential policy shifts tied to incoming data. Last week’s hot labor market figures may set the tone for a more hawkish Fed if inflation comes in higher than expected.

Daily digest market movers: DXY remains neutral ahead of CPI data, minor reports didn’t trigger movements

• The National Federation of Independent Business's (NFIB) reported a decline in small business optimism, largely because of inflation and labor market worries. Despite a strong jobs report in March, there's a suggestion that austerity in monetary policies could lead to a rise in unemployment rates if sustained.
• Federal Reserve (Fed) officials seem to have tempered their hawkish tone, indicating a potentially dovish or neutral stance on monetary policy. The markets factor in diminished possibilities of a rate cut, with the chances of a June cut dropping to almost 50%, and a July cut below 90%. Both rates are seen as the lowest since last October.
• US Treasury yields are undergoing a decline. Specifically, the 2-year yield declined to 4.74%, while yields at 5-year and 10-year tenures traded at 4.37% and 4.36%, respectively. 
• CPI data will likely fuel volatility in the bond market and on the expectations of the next Fed decisions.

DXY technical analysis: DXY demonstrates bullish tendencies despite short-term constraints

On the daily chart, the static position of the Relative Strength Index (RSI) indicates neutral momentum, while the appearance of a fresh red bar in the Moving Average Convergence Divergence (MACD) histogram signals a potential shift toward bearish momentum in the short term.

On the other hand, the DXY is experiencing some bullish resilience, as evidenced by its stance above the 20, 100, and 200-day Simple Moving Averages (SMAs). The current positioning of DXY suggests that the buying force is still dominating with a defensive line held by the bulls, keeping the DXY  above these significant SMAs.