US Dollar Index Defends Corrective Bounce but Struggles to Gain Momentum after Two-Week Downtrend
Reassessing Fed Bets and Inflation Clues Provoke DXY Bears Ahead of Key Data and Events
The US Dollar Index (DXY) is currently reflecting the pre-Federal Reserve (Fed) anxiety as it fluctuates around 103.50 in early Monday's Asian trading session. This comes after experiencing a decline for two consecutive weeks. Despite the greenback's struggle, it's important to note that a light economic calendar and a reassessment of Fed bets have provided some support against six major currencies.
Although recent US economic indicators have favored a pause in the Fed's rate hike trajectory, as evidenced by the market's expectations of no rate hike in June, concerns about inflation persist, keeping the Fed hawks hopeful. Consequently, the release of the US Consumer Price Index (CPI) for May on Tuesday becomes a crucial event, especially since it is expected to show a slight easing to 4.2% year-on-year (YoY) from the previous reading of 4.9%. This data allows DXY traders to assess the situation and prepare for the outcome.
According to analysts at ANZ, "The publication of the US May CPI data just before the FOMC decision adds some uncertainty to the immediate course of action. A strong core print could potentially push the FOMC to take action. Market estimates suggest that core inflation rose 0.4% month-on-month (m/m), while the headline rate increased by 0.2% due to weaker energy costs."
US Dollar Index Technical Analysis
In terms of technical analysis, if the US Dollar Index (DXY) sustains a downward break of the 21-day moving average (DMA) around 103.65, it will likely find support at the 100-DMA level of approximately 103.05.