Dollar Index Strengthens Over 95.050, Weakens Under 94.610

The U.S. Dollar plunged to a two-month low against a basket of currencies on Wednesday after the December consumer inflation report came in as expected. Investors interpreted the data as bearish since coming out in line with expectations failed to increase the urgency for the Federal Reserve to tighten monetary policy sooner than expected.

On Wednesday, March U.S. Dollar Index futures settled at 94.950, up 0.049 or +0.05%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) finished at $25.43, down $0.17 or -0.68%.

The consumer price index (CPI) increased 0.5% last month after advancing 0.8% in November, the Labor Department said on Wednesday. In the 12 months through December, the CPI surged 7.0%, the biggest year-on-year increase since June 1982. Economists polled by Reuters had forecast the CPI gaining 0.4% and shooting up 7.0% on a year-on-year basis.

Sellers hit the greenback because traders had already priced in a March rate hike by the Federal Reserve and the CPI data did nothing to strengthen those hawkish expectations.

Additionally, Fed Chair Jerome Powell on Tuesday gave no clear indication that the Fed was in a rush to speed up plans for tightening monetary policy.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 94.890 will signal a resumption of the downtrend. A move through 96.475 will change the main trend to up.

The main range is 93.200 to 96.895. The index closed inside its retracement zone at 95.050 to 94.610. This zone is controlling the near-term direction of the index.

On the upside, potential resistance is a pair of 50% levels at 95.360 and 95.685, followed by a short-term retracement zone at 95.895 to 96.130.

Daily Swing Chart Technical Forecast

The direction of the March U.S. Dollar Index on Thursday is likely to be determined by trader reaction to 94.830.

Bullish Scenario

A sustained move over 94.830 will indicate the presence of buyers. This could trigger a surge into the key 50% level at 95.050. Overtaking this level could trigger a surge into the first resistance at 95.360.

Bearish Scenario

A sustained move under 94.830 will signal the presence of sellers. If this move creates enough downside momentum then look for the selling to extend into 94.610.

Taking out 94.610 with conviction could trigger an acceleration to the downside with 93.810 the next major downside target.