12.11.202216:17 Forex Analysis & Reviews: DXY: sharp drop in CPI. What's next?

As we suggested in Thursday's review, "if investors are disappointed with the US inflation data, it will provoke a new sell off of the dollar and the DXY drop towards 109.00." But the fall turned out to be even deeper, "warmed up" by labor statistics also published at the same time, according to which, the number of initial applications for unemployment benefits increased (up to 225,000 from 218,000 a week earlier), also turned out to be worse than the forecast for growth to 220,000. Although this is a minor change, it also negatively affected the dollar: the Federal Reserve has repeatedly linked monetary policy parameters with the state of the labor market in the country. The pace of monetary tightening could also slow down if labor market indicators help.

As a result, the DXY dollar index fell by 1.17% on Thursday, breaking through not only 109.00, but also 108.00 - the latest CPI indices made such a strong impression on investors.

As follows from the report of the Bureau of Labor Statistics, inflation in the US fell in October to 7.7% on an annualized basis (against 8.2% in September and the forecast of 8.0%). The core consumer price index (excluding food and energy prices) fell to 6.3% in October from 6.6% a month earlier. Thus, the likelihood of a 75 basis point Fed rate hike in December has decreased. On the contrary, now market participants, according to CME Group, are pricing in an 80% chance of a 50 bps Fed rate hike in December.

Canada and the US were celebrating national holidays on Friday, American banks and stock exchanges were closed, and the dollar continued to decline.

However, the level of confidence of American consumers was to be assessed. The University of Michigan was set to release a preliminary release of the Consumer Confidence Index. This index is a leading indicator of consumer spending, which accounts for the majority of overall economic activity. It also reflects the confidence of American consumers in the economic development of the country. A high level indicates growth in the economy, while a low level indicates stagnation. Despite the relatively high value of the indicator, it is expected to decline slightly (to 59.5 vs. previous values of 59.9, 58.6, 58.2, 51.5, 50.0, 58.4, 65.2, 59.4, 62.8, 67.2 in January 2022).

The level of influence on the markets (pre-release) is high. If it still turns out to be better than the forecast and the previous value, then it may somewhat revive the bullish mood for the dollar, causing the closing of some short positions on it, which will cause some growth in the dollar and compensate for some of the positions it lost on Thursday.

But for now, bearish sentiment on the dollar is strong. This week the DXY dollar index closes deep in negative territory.

In our previous review: "Dollar Index #USDX: technical analysis and trading recommendations for 11/10/2022" we gave trading recommendations: Sell Stop 109.90. Stop Loss 110.90. Take-Profit 109.60, 109.00, 107.40, 105.70;

Buy Stop 110.90. Stop Loss 109.90. Take-Profit 111.20, 112.00, 113.00, 114.00, 114.74, 115.00. As you can see, the downward scenario worked, the price reached the designated targets and levels 109.60, 109.00, 107.40. There is a strong support level at 107.40. From a technical point of view, it will not be possible to pass it immediately. A rebound is likely and, at least, a corrective growth towards the levels of 109.00, 109.60.

Above support levels 105.65 (EMA200 on the daily chart of CFD #USDX), 107.40 (EMA144 on the daily chart) CFD #USDX remains in the long-term bull market zone. Long positions still look preferable above these levels. However, they also need a signal to resume. The first such signal will be a breakdown of the short-term and local resistance level of 108.40.

Support levels: 107.40, 107.00, 106.00, 105.65

Resistance levels: 108.40, 109.00, 109.60, 110.00, 110.26, 110.46, 110.90, 112.00, 113.00, 114.00, 114.74, 115.00

Trading Recommendations

Dollar Index CFD #USDX: Sell Stop 106.90. Stop Loss 108.50. Take Profit 106.00, 105.65

Buy Stop 108.50. Stop Loss 106.90. Take-Profit 111.20, 112.00, 113.00, 114.00, 114.74, 115.00