US Dollar gains ahead of inflation data

• DXY trades near 106.00 with muted price action as markets prepare for November CPI.
• Inflation data is forecast to edge higher, keeping the Federal Reserve's cautious tone in focus.
• Profit-taking moderates gains, but strong economic data continues to support the Greenback.

The US Dollar Index (DXY) holds steady around the 106.00 mark as markets recalibrate following robust Nonfarm Payrolls (NFP) data last week. While a December rate cut by the Federal Reserve (Fed) remains widely anticipated, attention now shifts to November Consumer Price Index (CPI) data due Wednesday. Analysts expect annual headline inflation to rise to 2.7% from October's 2.6%, while the core CPI is likely to remain unchanged at 3.3%.

Despite some profit-taking after recent rallies, the Greenback remains buoyed by strong US economic fundamentals, with solid growth and sentiment indicators offering continued support.

Daily digest market movers: US Dollar trades sideways with key data ahead, backed by strong economic outlook

• November CPI headline inflation is forecast to rise to 2.7%, while core inflation is seen steady at 3.3%.
• NFIB small business optimism surged to 101.7, its highest level since June 2021, reflecting improved business conditions.
• The Atlanta Fed GDPNow model predicts Q4 growth at 3.3%, while the New York Fed Nowcast model projects 1.9% for Q4 and 2.4% for Q1 2025.
• Markets are pricing nearly 90% odds of a December rate cut, expected to be a "hawkish cut" amid sticky inflation concerns.

DXY technical outlook: Bulls eye higher levels amid cautious optimism

The DXY hovers near 106.00, with technical indicators offering mixed signals. The Relative Strength Index (RSI) points slightly upward but remains in negative territory, suggesting limited bullish momentum. The Moving Average Convergence Divergence (MACD) indicator shows smaller red histogram bars, signaling reduced bearish pressure.

The index is approaching the 20-day Simple Moving Average (SMA), a pivotal level for short-term direction. Resistance levels are noted at 106.50 and 107.00, while support remains strong between 105.50 and 106.00. Traders await Wednesday’s CPI release, which could trigger heightened volatility depending on the inflation outcome.