Dollar index up 0.4% after Eurozone inflation data.
Euro falls, ECB rate cuts increasingly likely.
Yen nears two-and-a-half-month high, other currencies vary.
Dollar Index Rebounds Amid Weak Euro Zone Inflation
The dollar index (DXY) experienced a rebound on Thursday, rising 0.7% to 103.37, catalyzed by weak Euro Zone inflation data. Despite this uptick, the index has declined around 3.2% in November, marking its biggest monthly fall since last year. This downtrend is attributed to expectations of a Federal Reserve rate cut in early 2024, influenced by subdued inflation and a loosening labor market.
Euro Slips as ECB Rate Cuts Loom
The euro fell against the dollar following lower-than-expected Euro Zone inflation, spurring bets on imminent European Central Bank rate cuts. November saw a significant drop in consumer price growth within the Eurozone, falling to 2.4% and stirring expectations for ECB monetary policy adjustments. This inflation trajectory has heightened the anticipation of ECB rate cuts as early as the first quarter of next year.
Fed and ECB Policy Directions in Focus
Investors are now focusing on the upcoming statements from Federal Reserve Chair Jerome Powell, following hints of potential rate cuts by Fed Governor Christopher Waller. The Personal Consumption Expenditure (PCE) price index, a key indicator for the Fed, is also under scrutiny for signs of continuing disinflation. If the core PCE falls short of expectations, the dollar may face further decline.
Yen Strengthens, Other Currencies Fluctuate
The yen has shown resilience, nearly reaching a two-and-a-half-month high against the dollar, amid expectations of a policy shift by the Bank of Japan. Meanwhile, Sterling and the Australian dollar exhibited fluctuations, with the latter achieving a notable 4.3% increase in November, its largest monthly gain in a year.
Daily US Dollar Index (DXY)
The US Dollar Index (DXY) currently exhibits a neutral to slightly bearish sentiment. The current daily price of 103.115 is slightly above the minor support level of 102.853, yet it remains below both the 200-day and 50-day moving averages, at 103.589 and 105.496, respectively. This positioning beneath the key moving averages suggests a lack of strong bullish momentum.
Additionally, the price is approaching the minor resistance level of 103.572. A breakthrough above this resistance could signal a shift towards a more bullish outlook, whereas failure to surpass this level might reinforce the current bearish trend. The proximity to these technical indicators indicates a market at a potential inflection point.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.