Before Friday’s CPI report, the US Dollar Index pauses above important Fibonacci support, slipping to 98.857 in the middle of the session.
As traders wait for the inflation data to recalibrate rate expectations, the DXY stays rangebound between 98.714 and 99.139.
As CPI becomes the only focus, traders price in a 97.3% likelihood of a Fed rate decrease next week, which is somewhat lower.
Ahead of the important CPI report, the dollar index edges lower around support.
As the recent rally pauses close to a crucial support zone, the U.S. Dollar Index (DXY) is trading marginally lower at mid-session Wednesday, down 0.11% to 98.857. Due to the government shutdown that has frozen the flow of economic data, traders are still being cautious. The next significant input for guidance will be Friday’s postponed CPI report.
Following a three-day rally, the dollar stalls at the support zone
Thus far in the session, the DXY has fluctuated between 99.139 and 98.836 before pulling down after a short test above the top boundary of the support zone around 98.797–98.714. This region is still crucial; a break of the Fibonacci level of 98.714 might expose the index to the 50-day moving average at 98.078, which has held back the loss from last week, and the 50% retracement at 98.238, respectively. Price movement is expected to be restrained in the absence of a short-term bullish impetus, although the upside is still accessible to 99.563.
Consistent Yields Show Pre-CPI Caution
As traders brace for Friday’s inflation data, U.S. Treasury yields are flatlining. The 2-year and 30-year rates are constant at 3.457% and 4.549%, respectively, while the benchmark 10-year yield is close to 3.974%. Due to the suspension of all other economic statistics, the CPI announcement will be the only factor influencing rate expectations before to the Fed’s October 29 meeting.
The likelihood of a 25 basis point drop is now 97.3% in Fed funds futures, down from 99.4% the day before. A weaker inflation figure, according to analysts, would allow the Fed to soften more quickly, while a greater one may impede that course.
On fiscal signals, the yen recovers as sterling declines
UK inflation data underwhelmed at 3.8%, which fueled anticipation of a possible rate drop by the Bank of England in December. As a result, UK inflation data declined 0.4% to $1.3318. In the meanwhile, the news that Japan’s new prime minister, Sanae Takaichi, would pursue a sizable stimulus plan caused the yen to slightly strengthen versus the dollar, rising to 151.85. With the next meeting of the Bank of Japan scheduled for October 30, traders are keeping an eye out for coordinated policy action.
Market Prediction: The Dollar Will Probably Hold Range Until the CPI Statement
Since there is no new data to influence direction and the DXY is still above the 98.714 mark in the middle of the session, the index is probably going to stay rangebound. The CPI on Friday will be the next source of volatility for traders. A decline below 98.714 may reveal weaker levels, while a higher reading would encourage a climb above 99.563. Until then, price activity is anticipated to be contained inside the 98.714–99.139 area.