EURUSD, DXY Forecast: CPI Results to Test DXY Strength

Key Events

US CPI (Core, m/m, y/y)
FOMC Minutes Meeting indicate no major concerns for US economy
Technical Analysis DXY, EURUSD

Source: CME Fed Watch Tool

The latest FOMC minutes reflected confidence in the US economy, with no significant concerns about its health. Recent non-farm payroll data further alleviated fears about the labor market, reinforcing the market's expectation of a 25 bps rate cut in November. This, along with geopolitical tensions and the upcoming US elections, has kept the DXY on stable ground, supported by safe-haven demand.

Technical Analysis

DXY Forecast: 3Day Time Frame – Log Scale

Source: Tradingview

The DXY has rebounded strongly from its Dec 2023-July 2023 lows, thanks to the resilience of the US economy. Within the parallel channel connecting the declining highs and lows from 2023 to 2024, the DXY’s rebound remains solid near the mid-channel level ahead of the US CPI results.

The RSI on the 3-day chart is holding steady at 53, above the neutral 50 level, indicating that there’s still room for upward momentum. The DXY is currently hovering just below the 103 mark, and safe-haven demand could push it towards 104 and 105, especially with geopolitical tensions and the expectation of a more cautious easing approach from the Fed.

On the downside, the consolidation zone between 101.50 and 100.50, which extended through August and September, is expected to provide strong support before confirming any bearish scenario for the DXY.

EURUSD Forecast: 3Day Time Frame - Log Scale

Source: Tradingview

As the DXY eyes the 103 zone, the EURUSD is approaching critical support at 1.09-1.0870, sitting on the upper edge of the pair’s consolidation range. Both the DXY and EURUSD are nearing pivotal levels ahead of the US CPI report.

From a technical standpoint, the EURUSD is nearing a significant support level, both in terms of the chart and the RSI. A drop below 1.0870 could invalidate the bullish outlook, leading to a potential retest of the 1.0780 and 1.0680 levels before confirming a deeper downtrend for the pair.

On the upside, resistance at 1.10 and 1.12 will be crucial to confirm a sustained bullish reversal. Following the CPI results, attention will shift towards next week’s ECB Monetary Policy meeting, with expectations of a rate cut increasing due to cooling inflation figures in Europe, adding a bearish tone to the EURUSD.

--- Written by Razan Hilal, CMT on X: @Rh_waves

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