Dollar On Watch Ahead of Inflation Tomorrow
Fresh US/Iran Attacks
The US Dollar is starting the week in a muted fashion with the DXY a little softer through the European open on Monday. Traders are monitoring headlines on the Middle East following the fresh attacks overnight between the US and Iran. The US carried out fresh missile strikes against Iranian targets while Iran retaliated by attacking US military sites and interests in neighbouring countries. USD hasn’t responded so far, however, likely due to the pullback we’ve seen in crude following the initial spike higher at the open. However, if attacks continue this could start to drive USD higher again on fresh safe-haven demand.
USD & Oil
USD upside will be further strengthened by any fresh push higher in oil given its implications for the US inflation outlook. The drop in crude prices over the last month has raised some questions around the hawkish Fed expectations which have built up recently. However, if oil starts to push higher again, these inflation expectations will become more entrenched, reaffirming these hawkish Fed projections expectations and creating fresh demand for USD.
CPI Due Tomorrow
Looking ahead this week there will be plenty of focus on inflation expectations and the Fed with CPI due tomorrow followed by PPI on Wednesday, as well as Fed’s Warsh’s two-day testimony at the Senate. For the headline CPI release tomorrow, the market is looking for inflation to cool slightly to 2.8% from 2.9% prior. If CPI does fall, and particularly fi we see a sharper drop, this should help temper rate-hike bets, pulling USD lower through the middle of the week. However, any upside surprise tomorrow should see rate-hike expectations holding firm, pushing USD back up to YTD highs.
Technical Views
DXY
The index remains in the middle of the bull channel for now, above 100.18 but capped by 101.91. Given the bull trend, focus is on a fresh push higher while price holds above 100.18 with 103.20 the next target. If we break lower, the bull channel lows and 99.15 will be the key support zone to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.