US dollar index on track for its worst week of the year: The Week Ahead

US dollar index on track for its worst week of the year: The Week Ahead

With Fed Chair Jerome Powell effectively delivering a dovish pivot during his testimony to the house Committee, traders will no doubt jump onto weaker US economic data to reprice multiple rate cuts - and that could weigh further on the US dollar. 

The week that was:

The week ahead (calendar):

The week ahead (key events and themes):

• US inflation, CPI expectations
• UK data dump
• China’s data (new loans, loan prime rate)

US inflation, CPI expectations, consumer sentiment

As always, the US inflation report will be the highlight of the week. Over the past month, the headline CPI report rose and came in above expectations whilst PCE inflation rose but met expectations. The main issue of course is that inflation is rising. And if it continues to do so in next week’s figures, the Fed may need to walk back Powell’s dovish pivot he delivered to the House Committee this week.

There are also two doses of inflation expectations; one from the New York Fed on Monday and another within the University of Michigan consumer sentiment report. Inflation expectations are a lot lower than they were, so as long as they remain suppressed then the case for a Fed cut remains alive.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

US dollar index technical analysis:

The US dollar index (DXY0 is on track for its worst month of the year. And there could be further losses ahead should US data back up Powell’s dovish pivot. The weekly chart shows that prices have fallen beneath the VPOC (volume point of control) around 103, which now brings the next highest volume node into focus.

For now, the US dollar index has found stability around 102.75, just above the 50% retracement level. Therefore, a retracement higher is expected. But the bias is to fade into USD strength next week, in anticipation of a move towards 102, near the high-volume node and 61.8% Fibonacci retracement level.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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