US dollar trades lower as investors factor in US CPI and potential dovish stance from the Fed

• The DXY Index is trading with losses below the 104.00 mark.
• US November showed no surprises and confirmed a deceleration.
• Investors await Fed Interest Rate Decision due this Wednesday.

The US Dollar (USD) is currently undergoing a slight retreat as the DXY index trades at 103.95 after the release of November’s Consumer Price Index (CPI) figures from the US, which fueled dovish bets on the Federal Reserve. 

Against a backdrop of cooling inflation and despite a strong labor market, the Fed appears susceptible to veering toward a more dovish stance. In that sense, Fed officials are not ruling out further policy tightening, so markets will closely monitor the bank’s stance at the upcoming meeting on Wednesday.

Daily Market Movers: US dollar dips after CPI data, markets see rate cuts in May 2024

• The US Dollar trades lower as investors assess the impact of US CPI data and dovish expectations from the Federal Reserve.
• In November, the US saw a predicted easing in inflation, according to the CPI. The CPI recorded a modest rise of 0.1% for the month. Compared to October's 3.2%, the annual inflation rate slightly decreased to 3.1%.
• Core CPI reported by the US Bureau of Labor Statistics remained unchanged at 4% YoY, matching both the previous and expected figures.
• Meanwhile, US bond yields are down with 2-year, 5-year and 10-year yields at 4.71%, 4.23%, and 4.22%, respectively.
• According to the CME FedWatch Tool, a rate hike is not expected in Wednesday’s meeting, with the market betting on rate cuts likely to happen in May 2024.

Technical Analysis: DXY bulls hold resilient, indicators still weak

The indicators on the daily chart reflect a bit of a mixed picture for the pair. The Relative Strength Index (RSI) is in negative territory with a negative slope, indicating diminishing buying momentum. This is reaffirmed by the status of the Moving Average Convergence Divergence (MACD) indicator, which is registering decreasing green bars.

Bucking short-term cues, the Simple Moving Averages (SMAs) showcase a broader bullish trend. The pair remains above the 20-day SMA and crucially above the 200-day SMA, highlighting that bulls have the upper hand in a wider time frame despite temporary bearish leanings.

However, the pair's position below the 100-day SMA suggests a note of caution and potentially a near-term consolidation or pullback phase. The ongoing action on the charts can be seen as bears taking a breather, while bulls remain resilient. 

Support levels: 103.70 (20-day SMA), 103.50, 103.30.
Resistance levels: 104.50 (100-day SMA), 104.50, 104.70.