USD/PEN declines amid dovish Fed, eyes on inflation data from the US

• USD/PEN trades with losses at the 3.8200 area.
• Investors await inflation figures from the US on Thursday, which are expected to have decline in September.
• Dovish Fed officials make the US Dollar lose interest, but the escalation of the Israeli conflict may limit the losses.

On Tuesday, the USD/PEN saw downward movements and declined to 3.8200. On the one hand, Federal Reserve (Fed) officials are delivering dovish messages which weaken the green currency, while the PEN is seen as vulnerable after last week’s rate cuts by the Peruvian Central Bank.

In line with that, after Lorie Logan stated on Monday that the Fed has “less need to continue hiking”, Raphael Bostic added during Tuesday’s session that the bank “doesn't need to increase rates any more”. As a reaction, US bond yields are retreating but remain high, with the 2,5 and 10-year rates standing at 4.96%,4.61% and 4.67%.

On Wednesday, the Federal Open Market Committee (FOMC) will release its September meeting minutes. For Thursday’s session, investors will closely watch the September Consumer Price Index (CPI) figures from the US, which is expected to decline to 3.6% YoY and the Core measure, which is seen falling to 4.1%. In that sense, both events will impact the expectations of the following Fed decisions and, hence, the USD price dynamics.

On the PEN side, the currency seems to be losing interest after last Thursday's Banco Central de Reserva del Peru (BCRP) decision to reduce the rate to 7.25%. However, the policy statement indicated that the decision doesn’t imply a cycle of successive interest rate cuts, as further adjustments will depend on incoming information. 

USD/PEN Levels to watch 

 The technical outlook for the USD/PEN is bullish for the short term, but indicators flash overbought conditions, suggesting that more downside may be on the horizon. The Relative Strength Index (RSI) stands above 70, while the Moving Average Convergence (MACD) prints stagnant green bars. Also, the pair is above the 20,100,200-day Simple Moving Average (SMA), implying that the bulls retain control on a broader scale.

Support levels: 3.7705, 3.7484 (20-day SMA), 3.7350.

 Resistance levels: 3.8360, 3.8490, 3.8600.

USD/PEN Daily Chart