USD Index slips back to 9-week lows near 101.30 ahead of CPI

• The index extends its rout to multi-week lows near 101.30.
• US inflation is expected to have receded further in June.
• Fed’s Beige Book, Mester next on tap in the docket.

The greenback, in terms of the USD Index (DXY), extends the bearish move to new 2-month lows in the 101.30 region on Wednesday.

USD Index now looks at US CPI, Beige Book

The index drops for the fifth consecutive session and accelerates the decline to 9-week lows in the 101.35/30 band on Wednesday.

Indeed, the dollar remains well offered in a context where the appetite for the risk complex prevails ahead of the publication of key US inflation figures tracked by the CPI for the month of June.

In the meantime, US consumer prices are expected to have receded further during last month, which in turn fuel hopes that the Federal Reserve might end its hiking campaign in the near term, despite a 25 bps rate hike later in July is largely anticipated.

Other than the June CPI, the US calendar will see the usual weekly Mortgage Applications measured by MBA, the EIA weekly report on US crude oil inventories, the Fed’s Beige Book and the speech by Cleveland Fed L. Mester (2024 voter, hawk).

What to look for around USD

The index loses further ground and extends the pessimism seen so far this week, this time revisiting the 101.30 zone ahead of the US CPI results.

Meanwhile, the likelihood of another 25 bps hike at the Fed's upcoming meeting in July remains high, supported by the continued strength of key US fundamentals such as employment and prices.

This view was further bolstered by comments from Fed Chief Powell at the June FOMC event, who referred to the July meeting as "live" and indicated that most of the Committee is prepared to resume the tightening campaign as early as next month.

Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Fed’s Beige Book (Wednesday) – Producer Prices, Initial Jobless Claims (Thursday) – Advanced Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 2023/early 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is down 0.19% at 101.46 and faces the next support at 101.67 (monthly low July 11) followed by 101.01 (weekly low April 26) and finally 100.78 (2023 low April 14). On the other hand, the breakout of 103.54 (weekly high June 30) would open the door to 104.50 (200-day SMA) and then 104.69 (monthly high May 31).