US Dollar steady as dust settles over recent CPI shocker

• The US Dollar trades around a three-month high. 
• Market is trying to digest the recent US CPI report which messed up the expected time table on Fed rate cuts. 
• The US Dollar Index seems to be stalling ahead of 105 and seeing some profit taking. 

The US Dollar (USD) is throwing a few good punches at the markets with a substantial rally midweek. The move comes on the back of surprise upticks in US monthly inflation (both headline and core). This in turn is triggering an earthquake in markets, which has sent equities nosediving, yields soaring and the US Dollar rallying against every major currency peer.

On the economic data front, a very light calendar offers room for markets to digest and recalibrate. Do not expect much from any single economic data point ahead this Wednesday with the Mortgage Applications Survey. Rather look for clues from US Federal Reserve members Austan Goolsbee and Michael Barr, who are speaking today and could soften the current inflation print with a nuanced message. 

Daily digest market movers: CPI is done, time to look forward

• Goldman Sachs was quite quick to come out with a report in the US Consumer Price Index (CPI) aftermath saying that the February numbers will be substantially lower and writing off the current knee jerk reaction in CPI numbers due to the intensive seasonal holiday period over December and January.  A mere drop on a hot plate thus, according to Goldman Sachs.
• North Korea has fired multiple cruise missiles off the East Coast. 
• The weekly Mortgage Applications Index went into contraction by 2.3%, coming from a positive 3.7% previous week.
• Two US Federal Reserve speakers are set to make comments this Wednesday: Around 14:30 GMTChicago Fed Austan Gooldsbee, and later near 21:00, Fed’s Vice Chairman Michael Barr will speak. 
• Equity markets are trying to recover with European equities mildly in the green. US equity futures are even more up than European ones, with the Nasdaq leading the charge, up 0.50%.
• The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 91.5%, while 8.5% for a rate cut. In terms of overweight expectations for a rate cut, the dial has moved from May/June now into summer towards July.
• The benchmark 10-year US Treasury Note trades near 4.30%, a touch softer from its peak on tuesday at 4.33%.

US Dollar Index Technical Analysis: tweaking the settings

The US Dollar Index (DXY) soared to a near 105 after US CPI data. Although it looks very logical that the DXY could jump above that level now, markets have already incorporated the data after pushing back rate-cut expectations for the Fed from June to July. It is possible, therefore, that in the coming days this up move will start to fade back in search of support. 

The road is now open for a jump to 105.00 with 105.12 as key levels to keep an eye on. One step beyond there comes in at 105.88, the high of November 2023. Ultimately, 107.20 – the high of 2023 – could even come back into scope, but that would be when several inflation measures are coming in higher than expected for several weeks in a row. 

Support should now be provided by the high of last week Monday near 104.59. Further down that 100-day Simple Moving Average looks rather doubtful, near 104.24, so the 200-day SMA near 103.67 looks more solid. Should that give way, look for support from the 55-day SMA near 103.08.