US Dollar rallies against all odds on surprise uptick in monthly headline CPI

NEW YORK (October 12) The US Dollar (USD) is at a crucial point in terms of positions as its summer rally quite abruptly came to a halt and took a turn for the worse. The US Dollar was unable to advance substantially on Monday when risk-off sentiment was the main theme in the aftermath of the Israel-Hamas conflict. Since then the Greenback has been retreating, and the slew of Fed speakers this week that believe the Fed is done hiking are pouring only more oil to the fire.

Traders perceived the US Consumer Price Index (CPI) numbers as a reason to sell bonds and push the US Dollar Index (DXY) back up again. Overall most of the elements fell in line of expectations. The biggest trigger was the uptick in the Overall CPI number, which means prices in food and energy are ticking up again, which are out of control of the Federal Reserve. 

Daily digest: US Dollar recovers

• US CPI numbers rattled the markets with the following numbers to digest. Headline CPI for the month rose from 0.3% to 0.4%. The monthly Core inflation, without food and energy, was steady at 0.3%. For the yearly measures the headline remained unchanged at 3.7%, while the core measure dropped from 4.3% to 4.1%. It seems thus that inflation in food and energy is picking up again, and by chance those are the factors the Fed cannot controle with its policy rate. 
• Additionally, the weekly jobless claims came out: initial claims remained unchanged at 209,000. Continuing claims went from 208,750 to 206,250. 
• Equities are paring backing their earlier gains as the US Dollar Index soars and seems to kill any risk-on sentiment for now on the back of that CPI report.  
• The CME Group FedWatch Tool shows that markets are pricing in an 88.3% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
• The benchmark 10-year US Treasury yield is sinking lower to 4.54%. The lowest level in nearly 10 days.  

US Dollar Index technical analysis: CPI saves the day

The US Dollar has started to look bleak, and any chance for a quick recovery  is hanging by a thread. Only a tick up in US inflation numbers for now did the trick and will grant the DXY another day near 106. It looks inevitable that the US Dollar Index (DXY) will need to look further down in order to find ample support before having a possible recovery bounce. 

For a second day in a row, the DXY opens below 106, which means that this level will be the first initial hurdle to recapture. On the topside, 107.19 is important to reach if the DXY can get a daily close above that level. If this is the case, 109.30 is the next level to watch. 

On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn. Instead, look for 105.12 to keep the DXY above 105.00. If that does not do the trick, 104.33 will be the best level to look for some resurgence in US Dollar strength with the 55-day Simple Moving Average (SMA) as a support level. 

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