The US Dollar (USD) tumbled on Thursday following the release of the June Consumer Price Index (CPI), which revealed a significant slowdown in inflation. The report, coupled with weaker-than-expected retail sales data, suggests that the Federal Reserve’s (Fed) measures to curb inflation are gaining traction.
Market focus now shifts to Friday’s Producer Price Index (PPI) figures for June and upcoming speeches from Fed officials, as investors seek confirmation that these numbers align with the central bank’s expectations and could trigger a more dovish policy response. With a September rate cut looking increasingly likely, the USD is facing mounting pressure.
Key Market Drivers:
- US CPI: Headline and core CPI figures for June both fell below expectations, indicating easing inflationary pressures.
- Retail Sales: Unexpectedly contracted by 0.1% in June, reflecting consumer caution amid higher prices.
- Jobless Claims: Initial and continuing claims saw minor declines for the week ending July 5th.
- Fed Speaker: Atlanta Fed President Raphael Bostic will speak at the NCUA’s Diversity, Equity, and Inclusion Summit.
- Equity Markets: Asian and European equities rallied, while US futures remained slightly subdued.
- FedWatch Tool: Markets are now pricing in a 68.1% probability of a 25-basis-point rate cut in September.
US Dollar Index (DXY) Technical Analysis:
The DXY is at a critical juncture, with the CPI report potentially serving as a make-or-break moment for September rate cut prospects. A further decline in the DXY seems more likely than a substantial rebound.
The 55-day Simple Moving Average (SMA) at 105.14 remains the first resistance level, followed by 105.53 and 105.89. On the downside, the double support at 104.81, formed by the 100-day SMA and a green ascending trendline, is a crucial area to watch. A break below this level could accelerate the DXY’s decline towards the 200-day SMA at 104.41 and potentially even lower to 104.00.
Outlook:
The USD faces increased downside risks as cooling inflation data solidifies rate cut expectations. The upcoming PPI data and Fed commentary will be key in determining the extent of the DXY’s potential decline.