Traders now turn their attention to a pivotal stretch for inflation figures, with CPI due Tuesday (consensus: +0.2% m/m, +2.8% y/y) and PPI on Thursday (consensus: +0.3% m/m, +2.5% y/y) and expectations are for high volatility: Markets and central banks all want to know more on the US Economy as the infamous Trump tariffs are finally in place.
Major pairs like EUR/USD and GBP/USD have seen sharp appreciation on the back of recent USD weakness, but that rally now faces a test.
With key data looming, uncertainty is creeping back in and imposes to have a look on the Dollar Index as the week gets underway.
After last week's trough in the DXY, sold off due to the consecutive NFP and PMI misses, buyers started to step in mean-reversion style.
Forming a low around the 98.00 handle with the 50-Day MA acting as immediate support, the buying is still a bit superficial as markets will want to see how inflation data lands.
A stronger than expected CPI will take out some of the pricing for a September cut.
Anything above 0.3% should strengthen the USD strongly which should have a negative effect on equities.
A miss on the other hand will turn the concerns to employment.
FED speak had expressed that US companies are for now absorbing the higher costs but we should see this effect spreading to consumer prices progressively as profit margins get squeezed.
The US Dollar has formed an intermediate upwards channel confirmed after the most recent 97.95 Friday bottom.
USD Bulls will have to hold above the Friday lows to avoid a more bearish outlook which should see other majors rallying strongly against it – Everything will depend on tomorrow's data.
In the meantime, the Greenback is held between the 200-period MA and the 50-MA, monitor both for breakouts.
RSI momentum is back to neutral, allowing more potential volatility.
After a bullish NA weekly open for the USD, buyers are facing the 98.50 Pivot Zone leading to some ongoing consolidation.
Expect a balanced price action in the waiting of the key data, particularly as RSI is coming close to overbought in the shorter timeframes.
The 50-H MA is acting as support at 98.20 while the 200-H MA acts as the next resistance at 98.85 – the rest of the action will have to be weighted depending on the potential USD Sellers at the current pivot zone.
If they do show up, expect rangebound action between this morning's 98.510 highs and the 50-H MA.
