US Dollar standing its ground despite disinflationary bets this Tuesday

• The US Dollar holds strong ahead of this week’s main event in the form of US CPI numbers. 
• Market expectations are for further disinflation. 
• The US Dollar Index holds above 104 and shows no signs of a breakout yet. 

The US Dollar (USD) is holding strong this Tuesday ahead of US Consumer Price Index (CPI) numbers. Traders are not selling the Greenback just yet ahead of the numbers, which is as to be expected. That expectation arose after Friday when the US Administration revised the calculation method and composition of the inflation baskets and metrics, in order to better reflect the actual price pressures consumers are facing these days. It led to a downward revision of the December inflation print and could mean an undershooting of the current CPI expectations from analysts and economists.

On the economic front, The National Federation of Independent Business (NFIB) is due to release its Index for January ahead of the US Consumer Price Index numbers. CPI numbers themselves are expected around 13:30 GMT and will be market moving, with all eyes on both the Monthly Core and Headline inflation, which are expected to further come down. Any surprise in these numbers could either push back or pull forward rate cut expectations from the US Federal Reserve, away from June where the bulk load of expectations is lying at the moment. 

Daily digest market movers: CPI tweak impact

• The National Federation of Independent Business (NFIB) has released its Business Optimism Index for January and saw a quick decline from 91.9 to 89.9 where 91.1 was expected.
• At 13:30 GMT, the US Consumer Price Index is due to be released:
  • Monthly Headline Inflation is expected to remain unchanged at 0.2%.
  • Monthly Core Inflation is expected to remain unchanged at 0.3%.
  • Yearly Headline Inflation is seen heading from 3.4% to 2.9%.
  • Yearly Core Inflation should go from 3.9% to 3.7%.
  • Biggest element to look out for is if the current Red Sea attacks are driving up prices with the longer routes shipping companies are forced to make to get goods from and to the US ports, which comes at higher costs. 
• The US Redbook Index for February 9th is due to be released near 13:55 GMT. Previous print was at 6.1%.
• Equity markets are very much dispersed this Tuesday, with Japan seeing its two major indices closing over 2% higher. Europe is not following suit and rather sees its Euro Stoxx 50 down near 1%. US equity futures are retreating as well after the Dow Jones briefly hit new all time highs on Monday.
• The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 84.5%, while 15.5% for a rate cut. 
• The benchmark 10-year US Treasury Note trades near 4.18%, little changed from Monday 

US Dollar Index Technical Analysis: Markets wrongfooted

The US Dollar Index (DXY) is not abating as most traders would have thought on the back of the inflationary revision metrics last Friday. The DXY is still near that 100-day Simple Moving Average (SMA) and looks to be playing chicken with the traders that are convinced the US Dollar is a bit overvalued and an earlier rate cut is still a possibility. Meanwhile US Dollar bulls are not going all in either, refraining from sending the DXY higher in the idea that rate cuts could come even after the summer now. 

Should the US Dollar Index move higher again, first look for a test at the peak of last week’s Monday, near 104.60. That level needs to be broken and is more important than the 100-day Simple Moving Average snap at 104.26. If price breaks above last Monday’s high (February 5), the road is open for a jump to 105.00 with 105.12 as key levels to keep an eye on. 

The first ideal candidate for support is the 200-day SMA near 103.64. Should that give way, look for support from the 55-day SMA near 103.04 itself. Should those fail, look for 102.00 as a big figure to do the necessary.