USD Forecast: DXY Prepares for U.S. CPI, 110 Support Handle in Focus

USD FUNDAMENTAL BACKDROP

The Dollar Index (DXY) has been relatively subdued thus far this week as markets prepare for U.S. inflation later today. While the ongoing midterm elections were thought to provide a ‘red’ sweep by Republicans, this has not been the case up until now however, the House looks likely to be controlled by the Republicans which may limit President Joe Bidens and the Democrats future proposals. The expected dominance by Republicans had the dollar trading marginally softer leading up to the elections but the key metric for markets this week is the CPI print (see economic calendar below).

ECONOMIC CALENDAR

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Source: DailyFX economic calendar

Both headline and core inflation which excludes food and energy (the Fed’s preferred measure) are projected lower yet still elevated should the actual figure match estimates. Anything higher than 8% and 6.5% respectively could end the recent USD downtrend, maintaining hawkish bets for the Fed.

Peak rates for the Fed in 2023 has come down since last week’s FOMC meet, closer to the 5% level from 5.1%.

FEDERAL RESERVE INTEREST RATE PROBABILITIES

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After U.S. CPI, the calendar is riddled with a slew of Fed speakers who will likely react in accordance with the inflation read.

TECHNICAL ANALYSIS

U.S. DOLLAR INDEX DAILY CHART

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