US Dollar experienced a decline as markets await CPI figures

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On Wednesday, the US Dollar (USD) experienced a slight decline, recording 102.4 on the US Dollar Index. This came as market participants adopted a wait-and-see approach, anticipating key market drivers. The session was notably subdued, with no major reports influencing market movements. Attention is now turning towards the upcoming release of the US Consumer Price Index (CPI) for December, scheduled for Thursday.

Currently, market forecasts are leaning towards five interest rate cuts in 2024, which is a more aggressive outlook compared to the Federal Reserve’s (Fed) prediction of a 75 basis points easing. The impact of robust US labor market figures was somewhat neutralized by a lower-than-expected US ISM PMI report, placing significant importance on December’s CPI data for shaping expectations of the Fed’s policy adjustments.

Market update: US Dollar dips slightly on a quiet trading day, with Fed Williams set to speak
The US economy is showing sustained growth, exceeding trend expectations for the fourth quarter and possibly the first quarter of the year, supported by lenient financial conditions.
The US Dollar is under pressure as market expectations for the Fed to ease monetary policy remain high. Fed’s Williams is expected to make statements by the end of the American trading session, which could influence market dynamics.
For Thursday, forecasts suggest the December Consumer Price Index will be 3.2% year-over-year, slightly higher than the previous 3.1%. The core annual rate is anticipated at 3.8%, a decrease from November’s 4%.
US bond yields for the 2, 5, and 10-year bonds are trending downwards. Current yields are at 4.35%, 3.96%, and 4.02%, respectively, which could limit the US Dollar’s upward potential.
According to the CME FedWatch Tool, markets are expecting the Fed to maintain current rates in the upcoming January meeting, with rate cuts anticipated around March and May 2024.

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Technical Analysis: Uncertainty among DXY bulls, with potential for selling pressure
Daily chart indicators show a reduction in buying momentum and an increase in selling pressure. The Relative Strength Index (RSI) is on a negative trajectory in bearish territory, indicating potential selling activity ahead.

Additionally, a decreasing trend in the green bars of the Moving Average Convergence Divergence (MACD) indicator reinforces the growing bearish sentiment, signifying a reduction in bullish momentum. Although bulls are pausing, their struggle to initiate a strong upward trend is evident.

This tentative bullish momentum is further evidenced by the index’s position relative to the Simple Moving Averages (SMAs). It is above the 20-day SMA but below the more significant 100 and 200-day SMAs, indicating that bearish forces are prevailing over the longer term.

Support levels: 102.30, 102.00 (20-day SMA), 101.80.
Resistance levels: 102.70, 102.90, 103.00.