Economic data analysis, the US Dollar Index (DXY) is awaiting US inflation data (PPI and CPI), with PPI data releasing on Tuesday, January 14, and CPI on Wednesday, January 15.
The US Dollar Index (DXY) is poised for significant movements as it awaits the release of crucial inflation data, specifically the Producer Price Index (PPI) on January 14 and the Consumer Price Index (CPI) on January 15. Recent tariff rumors from President-elect Donald Trump's economic team have caused a temporary pause in the dollar's ascent.
As the DXY retreats from the psychological level of 110.00, anticipation builds ahead of the US inflation report. The PPI, which measures inflation at the wholesale level, will be released first, setting the stage for the CPI, which reflects consumer price changes.
Key Support and Resistance Levels
The DXY currently finds key support at 109.57, with resistance at 110.00. A breakout above 110.00 could pave the way for a move towards 111.00.
Tariff Rumors Influence the Dollar
The US Dollar started the week on a strong note, buoyed by robust payroll data released last Friday. However, as the day progressed, rumors emerged suggesting that Trump's team is considering a gradual approach to tariff increases to mitigate inflationary pressures.
According to a Bloomberg report, Trump's economic advisers are discussing the possibility of incrementally raising tariffs by 2% to 5% each month. This strategy is intended to strengthen the US negotiating position while avoiding abrupt inflation spikes. Key figures involved in the discussions include Scott Bessent, Kevin Hassett, and Stephen Miran, although the proposal has yet to be presented to Trump.
This news contributed to a brief recovery in US stocks and pulled the DXY away from the critical 110.00 mark. However, concerns surrounding the potential impact of tariffs on US inflation are likely to keep the dollar supported in the short term.
The focus this week is undoubtedly on the impending PPI and CPI releases for December.
PPI and CPI Release Schedule
PPI Release: January 14, at 13:30 GMT
CPI Release: January 15, at 13:30 GMT
Expectations for PPI and CPI
The PPI data will be scrutinized for signs of rising price pressures, as an increase often precedes a jump in consumer inflation. Analysts expect the headline PPI to align with estimates, with a slight uptick in core PPI from 0.2% to 0.3% for December.
For the CPI, markets anticipate a monthly increase of 0.4%, although a more subdued print of 0.3% could materialize, potentially leading to resistance against a DXY rally.
Adding to the market's volatility, several Federal Reserve officials are set to speak today and tomorrow. Notably, John Williams will address the market at 20:00 GMT today, followed by Thomas Barkin at 13:00 GMT tomorrow, just before the CPI release.
Key Levels on the Daily Chart
The DXY has encountered significant resistance around the psychological 110.00 level. Recent tariff news coincided with a touch of this level, leading to selling pressure and profit-taking, which contributed to the dollar's slide.
The daily chart indicates a shooting star candle, suggesting potential downside. However, a brief attempt to push lower met with buying pressure, indicating underlying bullish momentum. This is further supported by a golden cross pattern forming, as the 100-day moving average crosses above the 200-day moving average.
For the DXY to establish a bullish trend, it must clear the 110.00 resistance with a daily close above this level. If successful, the index may target the 111.00 handle.
In summary, the US Dollar Index (DXY) is at a critical juncture as it awaits key inflation data that may shape its future trajectory. The influence of tariff rumors has created a pause in the dollar's rise, with traders closely monitoring PPI and CPI releases. Technical analysis suggests that while the DXY faces resistance at 110.00, it also has solid support, indicating a potentially volatile week ahead.
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