USDInd dips below 106 before US CPI on Thursday

The relentless rally in the dollar has eased in the past week.

Despite, the mild bid for safe haven currencies seen after the blockbuster monthly jobs report and after the weekend tensions in the Middle East, markets have looked beyond these events and latched on to dovish Fedspeak from a few officials which has seen a sharp reversal in the 10-week bull trend.

The key driver of that and the subsequent turnaround has been in Treasury yields after the widely watched 10-year yield hit levels last seen in 2007.

This is widely considered a global proxy for borrowing costs so is an important indicator for various financial markets.

The strong NFP headline masked softer details underneath the hood.

Wage growth is slowing, job gains were narrowly based, and the household survey revealed much weaker job growth.

Recent comments from Fed officials have added to USD headwinds with various members, from both the hawkish and more dovish side, hinting that rising long-term US yields are doing some of the heavy lifting for the central bank which may mean less need for policy tightening going forward.

Fed Funds futures have reined in their bets on one more 25bp rate hike this year, with the odds now standing below 30% from above 40% only a few days ago.

Later today (Wednesday, October 11th), we get the FOMC minutes.

Note this comesfrom the most recent meeting which saw both the economic projections and median dot plot upgraded.

Many observers were shocked by the Fed’s hawkishness so there are hopes that the minutes could be used to dampen this message a little, which would be slightly more in tune with some of the Chair Powell’s comments at the subsequent press conference.

The minutes could also be seen as slightly stale, owing to the Fed chatter in recent days.

This means eyes will be focused on tomorrow’s latest US inflation which is expected to reaffirm the ongoing disinflationary trend.

Technically …

Last week’s close on the DXY was bearish with price action printing a “shooting star” candlestick pattern.

This forms when prices rise significantly but then close near the open price, so the candlestick has a long upper shadow and virtually no lower shadow at all.

The DXY also stalled around the 50% retracement of the 2022/2023 drop at 107.17.

Notably too, the reversal in the uptrend came after eleven consecutive weeks of gains which is exceptionally rare in major currencies.

The index is now on a losing streak of six straight daily losses which has only been seen once this year.

The next major Fibonacci level sits at 105.38 and may act as support.