On Friday, the dollar was on track for its best week in over five months against key rivals, betting on quicker Fed rate rises after data this week revealed the strongest US inflation in three decades.
- During a two-day rise, DXY remains parked after updating a multi-month top.
- Expectations on a Fed rate rise boost US Treasury rates and the greenback.
- Evergrande, China news may combine with Michigan Consumer Sentiment in the United States to delight traders.
DXY fundamental forecast
On Friday, the dollar hit a fresh 16-month high of 95.266, on track for a 1.05% gain this week, the most since the period ended June 20.
Inflation exciting the bulls
On Thursday, the greenback index rose for the second day in a row as the US inflation-driven boost continued to please bulls, despite a pullback in bond markets testing the bullish momentum.
After the US Consumer Price Index (CPI) climbed to a 31-year high, per figures for October, the benchmark US 10-year Treasury rates soared the most in seven weeks on Wednesday, about 1.582 percent at the latest.
The rising pricing pressure combines with the Fed’s recently dropped ‘transitory’ term to enable Fed hawks to forecast a rate rise.
While the inflation figures revealed that the current wave of price hikes caused by chronic global supply shortages might last longer than many had anticipated, many investors believe inflationary pressure would eventually decrease rather than strengthen.
ECB’s pullback
Policymakers at the European Central Bank recently lowered their economic predictions, attempting to explain their belief that the bloc’s inflation pressure is just transitory, necessitating no change in the current rate.
This adds to the most recent statistics from Australia and the UK, allowing some of the world’s biggest central banks to justify their cheap money policies.
As a result, the Fed’s first-mover advantage has been a driving force behind the US dollar’s recent gains.
Chinese economic concerns
The dollar’s safe-haven appeal is gaining importance as fears about China’s economic development deepen, owing to a credit crisis for real-estate businesses and power-cut issues.
The Sino-American spat over the phase 1 deal, and Vietnam and Hong Kong are weighing on market sentiment and favoring DXY bulls.
Key data releases from the US
Today’s events include a Jolts Job Opening and a speech by New York Fed President John Williams at an online conference, which might provide insight into how policymakers respond to the recent inflation spike.
What’s next?
Given the greater importance of US Treasury movements, a prolonged rise in rates can help the US Dollar Index. However, one should also consider the November US Michigan Consumer Sentiment report.
DXY technical analysis: key levels in action
DXY is well above the 100-day moving average on the daily chart, and the MACD is currently pointing upwards.
So far, the index has gained 0.06% since the start of the day. A break above 95.28 would open the door to 95.42. If it can cross that level, we’ll see the index touching 95.70, the level it reached in June 2020.
On the flip side, the next support for the index lies around 94.92, followed by 94.71, and finally, 94.57, the level it did manage to cross earlier in November.
