Dollar Rallying – Inflation on Watch
The US Dollar is marching higher at the start of the week with the DXY up around .5% through early European trading on Monday. The main theme dominating markets today is the prospect of higher US inflation under Trump, 'Trump-flation',which could thwart the Fed’s projected easing cycle. Trump’s agenda of protectionist trade policy and growth-focused domestic economic policy are widely expected to push USD and US inflation higher over the coming year.
Fed Impact
The big question now is how the path of USD will impact the Fed. Market pricing for a further .25% cut in December has fallen to around 60% in recent days. Looking ahead this week, traders will now be watching the latest incoming US inflation data on Wednesday. Annualised inflation is expected to hold steady at 2.4%, above the Fed’s target. If confirmed, this should keep USD supported for now and likely fuel a further weakening of Fed easing expectations. If we see any upside surprise, however, December pricing is likely to fall sharply, leading USD firmly higher this week.
US Data
Traders will then be turning their focus to US PPI and retail sales this week along with comments from Fed’s Powell who speaks on Thursday. Additionally, any rhetoric or announcements from Trump will also be watched this week, with USD vulnerable to fresh price spikes on any bullishness from Trump’s camp.
Technical Views
DXY
The rally in the DXY has seen price trading back above the 104.05 level. With momentum studies bullish focus is now on a fresh challenge of the bear trend line from 2023 highs and the 105.97 level. Above there, 107.25 is the bigger target. To the downside, 102.45 remains key support.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.