US Dollar testing key support after FOMC minutes

• FOMC minutes, US CPI events are weighing on the US Dollar. 
• US Dollar bears are in the market and eye a break of temporary support. 
• Bulls look for commitments for a correction from support. 

At 101.469 DXY, the US Dollar is being pressured on Wednesday following the Consumer Price Index (CPI) that increased in March at a slower-than-expected pace and minute from the FOMC´s March 21-22 meeting whereby the rate hike was widely viewed as dovish. DXY has dropped from a high of 102.15 to a low of 101.449 on the day so far.

The FOMC minutes showed that the staff at the Committee are forecasting a mild recession later in 2023 but also noted that wage growth was still well-above rates consistent with the 2% inflation target. 

Key quotes from the minutes: 

US CPI core stays hot

As for the inflation data, the report showed the prices urban consumers pay for a basket of goods and services increased by 0.1% from the previous month and 5.0% year-on-year, landing below consensus expectations of 0.2% and 5.2%, respectively.

But the core measure came in hot. This measure strips out volatile food and energy prices and was posting a month-on-month gain of 0.4%, and 5.6% on an annual basis, 10 basis points hotter than the February print.

Nevertheless, Fed funds futures traders are pricing in 69% probability that the Fed will raise rates by an additional 25 basis points at its May 2-3 meeting, down from around 76% before the data. This is sending the US Dollar lower on the day and into technical support as follows:

US Dollar technical analysis

Daily chart

The bias is to the downside while the index is on the front side of the bearish trend and considering the strong daily bearish impulse from the 78.6% Fibonacci retracement level.

H1 chart

However, there are prospects of a correction on the lower time frames from the support area as illustrated above.