Following today’s US data releases, the dollar index has now reached the top of a key support area between 104.00 to 104.27. This area converges with the high from December and point of origin of this week's breakout. The DXY will need to stay above this pivotal area to maintain its bullish bias. Failure to do so would be a bearish outlook, particular when you consider how strong inflation data was on Tuesday. The line in the sand for me is at 103.90, the low of this week. Any move below that would invalidate the short-term bullish technical picture as it will create a lower low.
Assuming that the above support area will continue to hold, the Dollar Index may rise above 105.00 initially ahead of 105.65 next, with the latter being an old support area.
US dollar weakens as retail sales drop
The US dollar was already lower on the session and then fell further in response to the mixed data releases from the US, with retail sales looking particular weak. But I reckon it is far too early to talk about the top for the dollar, and a recovery for the greenback is likely given the long-term bullish trend and recent strong data releases from other sectors of the economy, plus a hawkish Federal Reserve. The soft retail sales figures could be an outlier after beating expectations in each of the previous six months. What’s more, import costs posted its largest gain in nearly two years in January, which could stop the disinflation process. The Fed won’t like that, and after a hot inflation report, they will be even more cautious.
The dollar’s slight weakness over the past couple of days has coincided with market pricing of rate cuts in 2024 rising back to around 100 basis points after falling to 90 bps following the hot CPI data. But with talks of an early rate cut in March effectively over and lots of questions marks over a May rate cut, this should help keep the dollar supported on the dips.
Rising import costs is inflationary
Signs of sticky inflation are everywhere. Rising costs of petroleum were among the reasons behind the sharp 0.8% monthly rise in import costs last month. This was the biggest rise since March 2022, although a revised 0.7% decline in the previous month from zero means the data is perhaps less alarming that the headline suggests. Still, the rise was not insignificant buy was unexpected. This comes hot on the heels of the CPI data showing price pressures came down less than expected last month. With inflationary pressures on the rise, yields could remain supported for longer, undermining lower yielding currencies like the yen and franc.
Today’s publication of jobless claims also beat, as too did the manufacturing indices of Philly and NY. But softer industrial production and retail sales meant the dollar would head lower, a move which, as I mentioned, is unlikely to be sustained. Headline retail sales fell 0.8% while core sales declined by 0.6%, both missing expectations. Industrial output declined 0.1% m/m.
Looking ahead, on Friday, we will have PPI, building permits, and UoM Consumer Sentiment.
Written by Fawad Razaqzada, market analyst at Forex.com
Assuming that the above support area will continue to hold, the Dollar Index may rise above 105.00 initially ahead of 105.65 next, with the latter being an old support area.
US dollar weakens as retail sales drop
The US dollar was already lower on the session and then fell further in response to the mixed data releases from the US, with retail sales looking particular weak. But I reckon it is far too early to talk about the top for the dollar, and a recovery for the greenback is likely given the long-term bullish trend and recent strong data releases from other sectors of the economy, plus a hawkish Federal Reserve. The soft retail sales figures could be an outlier after beating expectations in each of the previous six months. What’s more, import costs posted its largest gain in nearly two years in January, which could stop the disinflation process. The Fed won’t like that, and after a hot inflation report, they will be even more cautious.
The dollar’s slight weakness over the past couple of days has coincided with market pricing of rate cuts in 2024 rising back to around 100 basis points after falling to 90 bps following the hot CPI data. But with talks of an early rate cut in March effectively over and lots of questions marks over a May rate cut, this should help keep the dollar supported on the dips.
Rising import costs is inflationary
Signs of sticky inflation are everywhere. Rising costs of petroleum were among the reasons behind the sharp 0.8% monthly rise in import costs last month. This was the biggest rise since March 2022, although a revised 0.7% decline in the previous month from zero means the data is perhaps less alarming that the headline suggests. Still, the rise was not insignificant buy was unexpected. This comes hot on the heels of the CPI data showing price pressures came down less than expected last month. With inflationary pressures on the rise, yields could remain supported for longer, undermining lower yielding currencies like the yen and franc.
Today’s publication of jobless claims also beat, as too did the manufacturing indices of Philly and NY. But softer industrial production and retail sales meant the dollar would head lower, a move which, as I mentioned, is unlikely to be sustained. Headline retail sales fell 0.8% while core sales declined by 0.6%, both missing expectations. Industrial output declined 0.1% m/m.
Looking ahead, on Friday, we will have PPI, building permits, and UoM Consumer Sentiment.
Written by Fawad Razaqzada, market analyst at Forex.com