The US Dollar (USD) is experiencing a significant decline on Tuesday following the release of crucial US inflation data for October. Traders are swiftly selling the Greenback, fueled by the belief that yields have reached their peak. The unexpected decrease in Core inflation is identified as the primary catalyst for this market reshuffling.
With the key event now behind us, markets are rapidly adjusting to factor out any potential rate hikes, leading to a substantial devaluation of the US Dollar Index (DXY). Consequently, the DXY is currently trading nearly 1% lower in its Tuesday performance.
In the daily overview, the headlines include a decline in the US Dollar, and Federal Reserve Vice Chair Philip N. Jefferson is not making any significant news. At 11:00 GMT, the National Federation of Independent Business (NFIB) report was released, showing a slight drop from 90.8 to 90.7.
The US Consumer Price Index for October reveals noteworthy figures:
- Monthly Headline inflation dropped from 0.4% to 0.0%.
- Monthly Core Inflation decreased to 0.2%, falling short of the expected 0.3%.
- Yearly headline inflation rate declined from 3.7% to 3.2%.
- Yearly core inflation rate dipped from 4.1% to 4%.
Chicago Fed President Austan Goolsbee is scheduled to speak at 17:45 GMT. Global equities are currently in a holding pattern, with no notable outliers. It appears that significant market movements are unlikely before the release of US inflation data.
The CME Group’s FedWatch Tool indicates an 85.7% likelihood that the Federal Reserve will maintain unchanged interest rates at its December meeting. The probability of a pause has slightly diminished ahead of the Tuesday inflation numbers.
The benchmark 10-year US Treasury yield is trading at 4.62% and is gradually trending upward.
In terms of technical analysis for the US Dollar Index, it confirms a technical correction. The USD is plummeting following recent US CPI data, contradicting warnings from US Federal Reserve Chairman Powell and the University of Michigan’s inflation expectations uptick last Friday. The DXY signaled a potential sell-off as it closed below the 55-day Simple Moving Average on Monday. Currently, the DXY is trading in an air pocket with support only near 104.18.
Previously seeking support around 105.00, the DXY bounced ahead of it last week. However, any unforeseen global market events could trigger a sudden reversal, favoring safe-haven flows into the US Dollar. A rebound to 105.85 seems plausible, a pivotal level from March 2023. Breaking above could lead to a revisit near 107.00 and recent peaks.
On the downside, breaching 105.10 has opened up considerable room for a decline. A substantial air pocket is forming, with 104.18 as the initial significant level, where the 100-day SMA may provide support. Just below that, around 103.58, the 200-day SMA should offer similar underlying support.