On Friday, the dollar index started the day in red and slid to a two-month low after the US inflation hit a record low.
- DXY slides to a two-month low and is now trading in red by -0.15%.
- US inflation rose to a level last seen in 1982 at 7% YoY in December.
- Traders wait for Retail Sales and NY Fed J. Williams speech for fresh impetus.
DXY fundamental forecast
The dollar was on track for its worst weekly drop in more than a year, as traders halt long positions and concluded that three rate rises in the US are already fully priced in this year.
Inflation causing the stir
Selling has driven the greenback through crucial support versus EUR and JPY in particular, and traders appear satisfied to decrease their bets until a clearer trend emerges.
As a result, DXY is down around 1.14 percent for the week, on track for its worst weekly percentage drop since December 2020, and poised to end a six-month run.
Down goes US treasury yields
The small drop in the annual Producer Price Index (PPI) on Thursday made it harder for the dollar to find demand, as the benchmark 10-year US Treasury bond yield fell roughly 2%, adding to the currency’s weight.
The dollar’s slump has occurred as interest rate futures in the United States have all but guaranteed four rises this year. On the other hand, Longer-term rates have decreased modestly due to hawkish statements from Federal Reserve officials.
US debt ceiling
The House and Senate decided to extend the debt ceiling, averting a first-time default by the United States as the clock runs out on the government’s capacity to pay its obligations.
The decision to extend the debt ceiling comes only one day before the United States may no longer be able to pay its creditors.
Treasury Secretary Janet Yellen stated that the Treasury was confident to pay payments through December 15. Still, there are scenarios in which the government might be unable to pay some debts after that date.
Key data releases from the US
Today’s events include Retail Sales, Industrial Production, Flash Consumer Sentiment, and Fed NY J. Williams speech.
The index loses its hold and falls to new 2-month lows in the area of 94.60, despite good performance in the risk complex and higher yields.
Fed officials continue to point to a faster-than-expected rate hike, persistently rising inflation, higher yields, and the US economy’s excellent performance on the plus side for the dollar.
DXY technical analysis: bears not out of the woods yet
DXY is slightly above the 100-day moving average on the daily chart, and the MACD is currently pointing upwards.
So far, the index has lost 0.13% since the start of the day. A break below 94.40 would open the door to 94.00. If it can cross that level, we’ll see the index touching 93.87, the level it reached on November 9.
On the flip side, the next resistance for the index lies around 94.90, followed by 95.20, and finally, 95.60, the level it did manage to cross earlier in the week.