US Dollar Price Forecast: Hot CPI Lifts DXY Above 102.20, Can It Break 102.50?

Hot CPI Snaps the Dollar Out of Its Oil Trade

The dollar held near a two-week high on Wednesday after hotter-than-expected US inflation data and hawkish Fed comments led traders to all but abandon bets that the central bank will hold rates at its meeting that concludes on December 9, Reuters reported. The dollar index, which tracks the greenback against six major currencies, was steady at 102.22 after rising 0.5% on Tuesday.

Dollar: Focus Shifts Back to the Fed

“The dollar has been mostly an oil trade since the (November 3 US midterm) election,” said Steve Englander, global head of G10 FX research and North American macro strategy at Standard Chartered. MUFG analysts said further progress in US-Iran talks would be needed to sustain lower energy prices and “help to ease upward pressure on the US dollar.” In my view, Tuesday’s data shifted the focus back to the Fed. The consumer price index rose 0.4% in October, above the 0.3% expected in a Reuters poll, and the two-year Treasury yield, which tends to move with rate expectations, jumped about 19 basis points, or 0.19 percentage point, to 4.738%.

Fed Governor Christopher Waller had said on Tuesday that the central bank should raise short-term borrowing costs next month. “The fact that Waller was sounding so hawkish caught the market’s eye,” Englander said. Traders now see a 91.9% chance of a quarter-point hike, up from 84% a day earlier, and a 9.1% chance of a half-point move, according to CME’s FedWatch tool, Reuters reported. Producer prices follow on Friday.

Euro: A Hawkish ECB Isn’t Enough

ECB Chief Economist Philip Lane told Bloomberg Television that “it would be prudent indeed to hike” in December if the information the ECB has then is the same as today, adding that “there will be more to come in terms of peak inflation.” A December move would lift the deposit rate to 2.75% from 2.5%.

The euro still fell about 0.5% to around $1.117 on Tuesday, Reuters reported. In my view, a central bank signaling a hike would normally support its currency, but the Fed is now expected to tighten faster, and that matters more for EUR/USD. The euro needs softer US data, not a more hawkish ECB, to recover.

Pound: BoE Keeps December Open

Bank of England Deputy Governor Clare Lombardelli told the Guardian she would not rule out voting for another hike in December, Reuters reported. “Equally, I don’t have enough information just yet,” she said. “It’s what I call a low-gear economy,” she added, describing “a real fall-off in hiring” but not “much in the way of redundancies.” The BoE raised Bank Rate to 4% last week. Third-quarter GDP data are due on Thursday.

US Dollar Index Technical Analysis: DXY Holds 102.21 as 102.50 Comes Into Focus

The Dollar Index (DXY) is trading near 102.30 on the 2-hour chart. DXY bounced from the 101.48 area on Tuesday and climbed back above 102.21, the pivot point, a level calculated from the previous period’s high, low and close that traders use to judge direction. That level acted as a ceiling in recent weeks. The index is also above both moving averages, which track average prices over time.

Resistance, where sellers may return, is 102.50, then 102.79. Support, where buyers may step in, is 102.21, then 101.95. RSI, a 0 to 100 gauge of buying and selling strength, is near 65 and above its signal line, a slower average of RSI, so buyers have the edge. I lean slightly bullish while DXY holds 102.21. A close above 102.50 would open 102.79, while a drop back below 102.21 would turn it into a ceiling again.

EUR/USD Technical Analysis: Euro Slips Below 1.1170 as Trendline Support Comes Into Focus

EUR/USD is trading near 1.1158 on the 2-hour chart. The pair was turned back near 1.1252 on Tuesday and has dropped below its 1.1170 pivot and both moving averages. A rising trendline, a line connecting higher lows since late October, sits just below.

Support is 1.1131, then 1.1105. Resistance is 1.1170, then 1.1195. RSI is near 38 and below its signal line. The bias is a slight bearish lean while EUR/USD stays below 1.1170. A close below 1.1131 would break the trendline area and open 1.1105.

GBP/USD Technical Analysis: Pound Breaks Below Trendline as 1.3312 Comes Into Focus

GBP/USD is trading near 1.3339 on the 2-hour chart. The pound was turned back at 1.3460 on Tuesday, then broke below its rising trendline from late October. It now sits under its 1.3355 pivot and both moving averages.

Support is 1.3312, then 1.3272. Resistance is 1.3355, then 1.3392. RSI is near 35 and below its signal line, so sellers have the edge. The pound keeps a slight bearish lean while it stays below 1.3355, and a close below 1.3312 would open 1.3272.