US Dollar Index dribbles around multi-year above 108.00 ahead of US inflation

• US Dollar Index seesaws near the highest level since October 2002.
• Market sentiment remains sour amid recession, inflation woes.
• US CPI is the key data for this week, risk catalysts could entertain greenback buyers.

US Dollar Index (DXY) bulls take a breather around the 20-year high as it takes round to 108.20 during the initial Asian session on Tuesday, after initially easing to 108.06. The greenback’s gauge versus the six major currencies rallied the most in three days while rising to the fresh high since October 2002 on Monday. That said, fears of further increases in prices amplify recession woes and underpin the US dollar’s safe-haven demand.

It should be noted that one-year US inflation expectations jumped to the record high of 6.8% in June, versus 6.6% prior, per the NY Fed’s survey of one-year-ahead consumer inflation expectations. Also contributing to the market’s pessimism are the hopes of Fed’s aggression, previously backed by the latest US jobs report. As per Friday’s release, the US Nonfarm Payrolls (NFP) rose by 372K for June, versus expected 268K and downward revised 384K prior while the Unemployment Rate remained unchanged at 3.6%.

Considering the data, White House Press Secretary Karine Jean-Pierre told reporters that she expects new Consumer Price Index (CPI) data to be highly elevated. Further, Atlanta Fed President Raphael Bostic said that recent inflation data has not been as encouraging as I would have liked, per Reuters.

Elsewhere, Shanghai’s first coronavirus Omicron sub-variant BA-5 case escalated virus woes after the dragon nation failed to sustain the unlock activities. Moreover, strong inflation data from the Asian major and doubts over Beijing’s GDP goal, as well as on the stimulus’ ability to renew optimism, exert additional downside pressure on the market sentiment and propel DXY.

While portraying the mood, equities remained depressed and the US Treasury yields kept flashing recession fears. S&P 500 Futures, however, print mild gains by the press time.

Looking forward, fears of an economic slowdown appear crucial support for the DXY buyers and hence chatters surrounding the same will be important to track ahead of Wednesday’s US Consumer Price Index for June, expected 8.8% versus 8.6% prior.

Technical analysis

The monthly resistance line challenges DXY bulls around 109.00 amid overbought RSI (14). The pullback, however, remains elusive unless breaking the previous resistance line from May 13, close to 106.40 by the press time.