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Dollar index consolidates ahead of inflation data

This week will be dominated by inflation data from the US, with the CPI expected to decline from 9.1% in July to 8.7%.

The USD has not moved anywhere over the previous weeks, with investors waiting for the Fed’s next move.

The main focus of this week will be tomorrow’s US CPI inflation figures. According to early projections, the price rise index will likely decline from its previous value of 9.1% to 8.7%. The consensus for inflation has changed downward as a result of the lower oil prices in July.

Meanwhile, the 3-year inflation expectations fell from 3.6% to 3.2%, according to the New York Fed’s Survey of Consumer Expectations, while the 1-year measure decreased from 6.8% to 6.2%. So at this point, the 3-year decrease unquestionably seems more attractive.

“Given the Fed comments over the weekend and the rally in equities and some tentative signs of commodities recovering, we feel a big downside surprise would be required tomorrow to fuel a more meaningful reversal of US dollar strength – something that seems very unlikely at this juncture.” economists at MUFG Bank said on Tuesday.

You may also read: Weekly macro report – Job report makes the Fed confident

The NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index are expected later in the US economic calendar. Nonfarm productivity, along with unit labor costs, bot for the second quarter, will also be included.

With the upside obviously restricted in the neighborhood of the 107.00 mark and the lower bound clearly constrained at the 105.00 zone, the dollar index is still on the back foot in the first part of the week amid the larger consolidation theme.

Economists at BBH maintain a strong dollar call but profess disappointment that it has not been able to move higher this week.

“Last week was an eventful one, filled with hawkish Fed comments backed up by strong US data. Yet the dollar’s bounce has already run out of steam,” they noted.

Looking at the macro environment, the dollar looks to be supported by the Fed’s divergence from most of its G10 rivals, notably the ECB, as well as periodic resurgences of risk aversion and geopolitical tensions.

Technical picture remains neutral

The index has formed what appears to be a triangle pattern, with the support zone near 105 and the resistance level at the bearish trendline, currently near 106.60. The next trend could begin once the price breaks from the triangle – whether to the upside or downside.

DXY daily chart, Source: Author´s analysis, tradingview.com

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