US Dollar Index looks side-lined around 95.50 ahead of key CPI data

• DXY trades within a range bound theme around 95.50.
• Investors’ attention remains largely on the CPI results.
• Further US data include the weekly Initial Claims.

The greenback, in terms of the US Dollar Index (DXY), trades within a narrow range in the mid-95.00s early in the European morning on Thursday.

US Dollar Index focuses on CPI

The index alternates gains with losses amidst a tight trading range in a cautious context previous to the publication of January US inflation figures gauged by the CPI.

The vigilant stance among market participants can also be seen in the US cash markets, where yields trade slightly on the defensive so far.

Still on inflation, market consensus expects consumer prices to have gained 7.3% in January vs. the same month of 2021, although a surprise on the upside carries the potential to spark a mini rally in the buck along with yields, as this scenario should support a potential 50 bps interest rate hike by the Fed in March.

Currently, and according to CME Group’s FedWatch Tool, the probability of a 25 bps rate hike in March sits just below 80% and above 20% when it comes to a 50 bps move.

Other than inflation figures, the US calendar will see the usual weekly Claims seconded by the Monthly Budget Statement.

What to look for around USD

The dollar keeps the consolidative mood unchanged around 95.50, at least until the release of the CPI figures. While the constructive outlook for the greenback remains well in place in the medium/longer run, recent hawkish messages from the BoE and the ECB carry the potential to slow the pace of a move higher in the dollar in the next months. The view of a stronger buck remains, in the meantime, propped up by higher yields, persistent elevated inflation, supportive Fedspeak and the solid pace of the US economic recovery.

Key events in the US this week: CPI, Initial Claims (Thursday) - Flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Fed’s rate path this year. US-China trade conflict under the Biden administration. Debt ceiling issue. Escalating geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is losing 0.06% at 95.50 and a break above 96.01 (55-day SMA) would open the door to 97.44 (2022 high Jan.28) and finally 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.20 (200-week SMA) followed by 95.13 (weekly low Feb.4) and then 94.62 (2022 low Jan.14).