- The DXY index is trading slightly defensive near the 108.00 area.
- US yields remain at the upper end of the recent range.
- All attention will be on the release of the US inflation figures.
The US dollar index DXYwhich measures the strength of the dollar against a basket of major currencies, extends the downward movement and retests the 108.00 region during the European session on Tuesday.
Dollar index focuses on the US CPI
The DXY index loses ground for third consecutive session on Tuesday amid continued improving sentiment around risk assets.
In fact, the dollar’s price action remains subdued and comes amid a general decline in US yields throughout the curve. In addition, investors continue to favor a 75 basis point rate hike at the Fed’s meeting on September 21, with the CME Group’s FedWatch tool pointing to a nearly 90% chance of that scenario.
Regarding the US data, the publication of the CPI inflation figures for the month of August will be the most important event at the beginning of the American session. The market consensus expects headline CPI consumer prices to have eased to 8.1% on an annualized basis (from 8.5%).
In addition to the CPI results, the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index will also be released.
What can we expect around the USD
The DXY index has embarked on a correction path from last week’s cyclical highs and remains hovering around the 108,.00 zone ahead of Tuesday’s CPI release.
The Fed’s firm conviction to keep raising rates until inflation appears well under control, despite a likely slowdown in economic activity and some loss of momentum in the labor market, appears to reinforce the dollar’s positive stance. This view was reinforced by President Powell’s speech at the Jackson Hole symposium.
From a more macroeconomic point of view, the dollar appears to be underpinned by the Fed’s divergence from most of its G10 peers, combined with bouts of geopolitical turmoil and the occasional resurgence of risk aversion.
Relevant DXY US Dollar Index Levels
At time of writing, the DXY index is down 0.12% on the day, trading at 108.17. Next support is found at 107.81 (Sep 12 low), followed by 107.58 (Aug 26 low) and 107.32 (55-day SMA). On the other hand, a break above 110.78 (Sep 7, 2002 high), would target 111.90 (Sep 6, 2002 high) and 113.35 (May 24, 2002 high).
Source: Fx Street
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