USD Weekly Outlook
Weekly forex analysis and forecasts
The Dollar Index (DXY) finished the week on the back foot following some major U.S. economic data such as Non-Farm Payrolls (NFP) and ISM services, as well as higher-than-expected core inflation in the eurozone despite decreasing oil costs (the euro accounts for 57.6% of the DXY).
Wage pressures are diminishing, which has been a concern in the US services sector, supporting high inflation statistics, according to a key statistic in the NFP report. It will be fascinating to observe if December's declining average hourly wages materialize into next week's US CPI announcement.
The CPI print will be the focus for the dollar, and given that both core and headline inflation data have been declining since late to mid-2022, a lower result might reduce positive support.
A CPI beat would imply a 50bps interest rate hike at the February Federal Reserve meeting (see to table below for current money market pricing), while a miss would imply a 25bps increase, leaving the DXY vulnerable to a leg down. The trading week will conclude with the Michigan consumer sentiment data for January, which is predicted to edge higher, indicating consumer optimism in the United States.
After the recent falling wedge (black) breakout failed to hold above the 105.00 psychological resistance mark, the daily DXY price movement did not continue higher. The overall trend is bearish, with the Relative Strength Index (RSI) trading below the 50-day SMA and below the 200-day SMA (blue). The CPI next week will most likely give some directional bias moving forward, keeping the DXY rangebound until then.
Resistance levels:
105.00
104.65
104.11
Support levels:
103.42
102.15