US Dollar Price Forecast: CPI Test Looms as DXY, EUR/USD and GBP/USD Hold Key Levels

US Dollar News: CPI Test Puts Fed, Euro and Pound in Focus

The U.S. dollar begins the week with July CPI due out later today. The data release may dictate whether the Federal Reserve pauses its interest rate hike cycle or continues to hike in September. Team Reuters forecasts 0.1% month over month increase in headline CPI after the June reported drop of 0.4% with expected annual inflation coming in at 3.4%. Forecasts expect a 0.2% month over month increase in core CPI and a 2.5% year over year increase. Given recent market action, most expect the Fed to stay on hold in September. Thus, today’s CPI number may have some consequence.

The Falling U.S. July employment numbers combined with the current geopolitical situation has the Fed in a tricky spot. Atlanta Fed interim President says very high inflation and the uncertainty of energy flows out of the Middle East are significant issues the Fed is facing. Three of the Fed board members urged a rate hike in the July meeting.

The euro is in the same dilemma of growth versus inflation as the Fed. The ECB recently said the Ukraine-Russia conflict disrupted eurozone household spending; however, recent manufacturing numbers for July showed factory output was the best it has been in nearly four and a half years. The ECB has expressed some concern that the growing AI industry in Europe will help counter the downturn of the economy that is caused by trade and geopolitical uncertainty.

The Pound has its focus on the Thursday release of UK Q2 GDP. Forecasts currently put the number at 0.4% for the quarter following Q1’s 0.6% gain. The Bank of England is expected to keep interest rates at their current level and remain focused on inflation so the BoE will be watching the economy closely in case the focus shifts to falling growth.

For all three currencies, U.S. CPI is the primary concern of the moment. Lighter CPI would lessen the likelihood of another Fed hike. Conversely, a steepening CPI would give more weight to a Fed hike for this year.

U.S. Dollar Index Technical Analysis: DXY Holds Rising Trendline but $100.06 Still Caps Recovery

Currently, the USD Index is at $99.87 and is trading right above the rising trendline and the key support area of $99.42. There have been signs of buyers coming in around the rising trend line, but the price still has a long way to go to reach the 50-day moving average (MA) at $100.30, 100-day moving average at $99.91, and is currently resting just below the rising trend line and the 50-day moving average. The recovery has not begun until these averages are crossed.

The Relative Strength Index (RSI) is at 41, and although it has begun to show a reversal as momentum has started to slow, there is still a strong bearish trend and it is still below 50. Immediate resistance is at $100.06 before $100.36 and $100.82. If the price can sustainably trade above these levels, then it will confirm a short-term bullish view and retest $101.62.

If there is a break down to the support of $99.42, then the rising trend line will also fall and provide a break to the support of $98.76. Until the price has the potential to test $100.36-$100.06, the USD Index is a cautious recovery scenario above $99.42.

GBP/USD Technical Analysis: Pound Holds Above $1.3515 Pivot as Bulls Target $1.3559

GBP/USD is currently trading at $1.3508, with bulls defending the $1.3515 support level. Pound bulls display impressive momentum as price continues to trend above the moving average convergence divergence (MACD) and the lower trendline. A combination of a series of higher lows and the bullish MACD support a strong upward price move. The MACD, currently at 61, is approaching overbought territory, however it does indicate a solid bullish momentum.

The identified resistance levels are $1.3515, $1.3559 and $1.3601. In case of a breakdown, bulls should base their defense at the $1.3437 low, $1.3401 low, and $1.3343 levels. The trendline will continue to act as an important structural support line. From my perspective, if bulls are able to successfully defend the trendline, a run towards $1.3559 is expected. However, if bulls fail to defend the trendline, a significant part of the bullish structure will be lost.

EUR/USD Technical Analysis: Euro Compresses Beneath Descending Trendline Near $1.1540

The pair is at $1.1537, consolidating beneath the long-term descending trendline limiting bullish momentum. EUR/USD is above the 50-period and 100-period EMAs at the $1.1523 and $1.1495 levels, respectively, keeping the short-term structure positive, with resistance above. Smaller candlesticks are forming between $1.1530 and $1.1540, suggesting consolidation rather than a reversal.

The RSI is at around 49, showing neutral momentum after the recent rally. $1.1569 is the next resistance level followed by $1.1621 and $1.1674. Support is found at $1.1532, with major support at $1.1516 and $1.1500 and $1.1456. In my opinion, if the pair breaks above $1.1569, it is a clear bullish sign. If price breaks the descending trendline, it has potential to break out of the consolidation.