US Dollar Index Forecast Stalls Near 99 After CPI as GBP/USD, EUR/USD React

Market Overview

During the European session, the US Dollar Index (DXY) was all over the market, swinging wildly around the 99 level. At the same time, the dollar was totally stuck, unable to figure out what to do after investors got their hands on the latest US Consumer Price Index (CPI) data, and were eagerly waiting for a bunch of key economic reports – the Retail Sales, Producer Prices, Business Inventories, Existing Home Sales and that Beige Book from the Fed officials.

But even the comments from top brass at the Fed – like Paulson, Miran and Williams – just added to the confusion, keeping the dollar rooted to the spot, bouncing around in a tiny range.

US Core Inflation Shows Signs of Easing

Looking at the numbers, the US Core Consumer Price Index, which strips out food and energy prices, actually rose by 0.2% in December, below what forecasters were expecting. But on the bright side, annual core inflation came in at 2.6%, a four-year low, signaling that inflation is slowing.

On the other hand, the main CPI rose by 0.3% month over month, as expected, but the annual rate remained at 2.7%. And all of this has been happening, but the US Dollar index keeps going up and down.

US Dollar Moves Mixed Amid Rising Yields and Global Uncertainty

The US dollar did get a bit of a boost from rising US Treasury yields, but even that got wiped out by some profit-taking and general cautiousness. On the other hand, people still seem to be flocking to the dollar as a safe haven, partly because of tensions in Iran and US. But there again, the dollar’s upward momentum never really got any traction – bouncing solidly between gains and losses, as investors try to weigh up the inflation trends against possible Fed rate cuts later on in the year.

US Dollar Index (DXY) – Technical Analysis

The US Dollar Index  is hovering around 99.15 on the 2-hour chart, just below that key resistance level of 99.26. Price is still respecting that trendline that started forming back in January, and is still looking good above the 23.6% fib level at 99. The main channel is still intact too, with strong support from 98.8 and 98.58.

The 50 period moving average is looking pretty healthy and all, and holding up nicely above the 200 period MA – that’s keeping things looking pretty constructive overall.

The RSI is just hanging around 55-60, which tells us that momentum is pretty steady, no real signs of things getting too overbought. The trade idea is to look at buying near 99, with a stop just below 98.8 and a target of 99.6.

GBP/USD – Technical Analysis

GBP/USD is currently trading around $1.3440 on the 2-hour chart, after pulling back from some recent highs. Good news is that it’s still holding above that trendline that started forming in December – that’s keeping the overall picture looking pretty constructive.

The past few candlesticks are a bit mixed, with lower wicks forming around 1.34 – that looks like the buyers are definitely active at that support level.

The pair’s still a bit capped below that trendline at 1.349, but that’s just keeping the upside attempts in check at the moment. We’re seeing some good horizontal support at 1.339, and resistance at 1.3495. The RSI is looking pretty neutral, around 50, not really showing us that a strong trend is in play. Overall, the trade idea is to look at buying above $1.35, with a stop below $1.34 and a target of $1.36.

EUR/USD – Technical Analysis

EUR/USD is currently trading around $1.1645 on the 2-hour chart, holding just above that trendline that’s been supporting the price after a pretty long pullback. The past few candlesticks are a bit of a mixed bag – small bodies with long lower wicks near $1.162 – which is starting to look like demand is emerging at that level. The price’s still a bit capped below that trendline from late December, so the short term bias is still a bit cautious.

Immediate resistance is at $1.1675, then $1.17, and deeper support is near $1.159. A tightening triangle here could hint at a potential breakout ahead. The RSI is looking pretty neutral – hovering around 45-50 – so we’re not seeing any real signs of a strong trend in play. The trade idea is to at buying above $1.168, with a stop just below $1.162 and a target of $1.174.