USDInd softens after stellar start to 2024

The US dollar, is taking a breather after an historic first few days of the new year.

The world's reserve currency has not fallen at the start of the calendar year since 2012 and it advanced again yesterday to a two-week high.

Checking through our charts, we see the start of 2024 is the biggest rally since 1997.

Prices closed above 102 on the USDInd, before being resisted at the top of a bear channel going back to the start of November, also where its 21-day simple moving average (SMA) currently lies.

This price action is a descending series of lower lows and lower highs.

Major risk events this week

1) The FOMC minutes, released yesterday (Wednesday, January 3rd), had both hawkish and dovish aspects so were largely balanced.

They suggested rate hikes were over with downside risks to the economy with an overly restrictive rate stance. But the minutes offered no timetable on cuts and said rates would be kept high in case of more persistent price pressures.

Markets were relatively unmoved after the release with two-way price action in Treasuries, but demand for the dollar remained intact.

2) The marquee US jobs data due tomorrow (Friday, January 5th) is set to show a slower pace of hiring, while wage growth should remain relatively steady.

This monthly US nonfarm payrolls report, usually due on the first Friday of every month, is a key economic indicator that helps inform the Fed on what to do with its benchmark interest rates.

Markets still see a 25bp March Fed rate cut as likely with around 155bps in total for 2024.

Even though traders have reined in some bets in the first few sessions of the year, it appears likely that an upside surprise could further dent hopes of rate cuts starting soon.

This would see more buying in the dollar.

3) Eurozone inflation is forecasted to rebound, when it's released tomorrow (Friday, January 5th).

The bloc’s headline CPI (consumer price index) number, which measures inflation, is expected to grow by 3%, while the core CPI number (excluding volatile prices from food and energy) should slide further, from 3.6% to 3.4%.

There’s around a 60% chance of an ECB rate cut in March so plenty of room for this to move lower and potentially support the euro.

Solid improvement in the Eurozone's economic outlook is probably needed to underpin a longer-term bid.

Euro set to have heavy influence on USDInd

Note that the euro accounts for more than half (57.6%) of the USD Index.

Hence, sustained gains for the bloc's currency should continue exerting downward pressure on the USDInd.

Initial support for USDInd may arrive around the mid-December cycle low of 101.80.