Despite the fact that the dynamics of the dollar did not have a clear direction during today's Asian trading session, and the dollar quotes were in a narrow range, it still remains under pressure.
As you know, inflation indicators for the US were published last week, indicating a slowdown in inflation in the country. Consumer price index (CPI) fell in October from 8.2% to 7.7% (year on year), stronger than the forecast of a decline to 8.0%. The core value (Core CPI) corrected from 6.6% to 6.3% against the forecast of 6.5% (also year on year).
The data signal that the Fed's efforts to contain inflation in the US are yielding some results and the pace of policy tightening may soon be slowed down.
Last Monday, Fed Vice Chair Lael Brainard noted that such changes in the approach to determining the necessary parameters of monetary policy are quite appropriate. At the same time, she noted that inflation is still too high and there is still a lot of work to be done to bring it back to the target level of 2.0%.
A little earlier, Fed Governor Christopher Waller expressed similar thoughts, admitting the possibility of slowing the pace of interest rate hikes. Yesterday, producer price indices in the United States for October were published, which also showed a slowdown: on a monthly basis, the indicator remained at the same level of 0.2% instead of the expected growth to 0.4%, and on an annual basis it adjusted from 8.4% to 8.0%.
Thus, the probability of a Fed rate hike by 75 basis points in December decreased. On the contrary, now market participants, according to the CME Group, put in prices an 80% probability of an increase in the Fed's interest rate in December by 50 bps.
In one of our previous reviews, we assumed that if the publication of US inflation data disappoints investors, it will provoke a new wave of dollar sell-offs and a drop in DXY towards 109.00.
At that time, DXY futures were trading near 110.46, maintaining a negative momentum and moving in the lower part of the descending channel that formed last month (on the DXY chart).
A break of these levels could trigger deeper DXY, up to key support levels at 107.40, 105.65. As a matter of fact, this happened: the price broke through the lower border of the descending channel on the DXY chart at 109.00 and reached the local low of 105.15 in the next three days, and yet, above the key support level of 105.65 (200 EMA on the daily CFD #USDX chart), the dollar index remains in long-term bull market zone.
Long positions in DXY will again become preferable when there are signals to buy. Now the first such signal will be the return of the price to the zone above the resistance level 107.40 (144 EMA on the daily CFD #USDX chart), and the confirming one will be the growth above the levels of 109.00, 110.00.
Today, market participants who follow the dynamics of the dollar, will study the report of the US Census Bureau on retail sales.
Consumer spending accounts for most of the total economic activity of the population, while domestic trade accounts for the largest part of GDP growth. A relative decrease in the indicator may have a short-term negative impact on the dollar, and an increase in the indicator will have a positive impact on the USD. The indicator is expected to grow (+1.0% in October against the previous monthly values 0%, +0,3%, 0%, +0,8%, -0,1%), which should, theoretically, support the dollar.
