This article was submitted by Aaron Hill from FP Markets.
After consumer prices in the US cooled to 5.0% in the twelve months to March, the US dollar fell sharply, according to the US Dollar Index. In five minutes, the index shed 0.5% and touched gloves with a low of 101.51. US equity index futures were immediately bid, and Treasuries rallied (yields sold off).
US inflation eased for a ninth successive month since pencilling in a peak of 9.1% in June 2022; this is the lowest rate since 2021. MoM, we saw the headline print rise by one-tenth of a per cent (vs expected 0.2%). The latest YoY print came in less than expected (median consensus was 5.2%, and the forecast range fell between 6.0% and 5.0%), a release underpinning an imminent pause in Fed policy tightening. Fed funds futures traders currently price around 12 basis points for the next Fed meeting on 3 May and anticipate cuts into the year-end.
However, YoY core inflation, which excludes energy and food prices, matched the median consensus estimate of 5.6% (vs the previous 5.5%), consequently remaining especially sticky, along with core MoM also equalling expectations at 0.4%.
US Dollar Index on the Doorstep of April Lows
According to the daily timeframe of the Dollar Index, price action is on the verge of shaking hands with April lows of 101.42. Breaching the aforementioned trough exposes demand at 100.27-100.77. It is, however, worth pointing out that the unit remains comfortable south of its 200 and 50-day simple moving average values (106.43 and 103.50) and has essentially been enclosed within a descending channel (between 103.36 and 101.92) since late March.
Therefore, scope to navigate deeper water on the daily scale until 100.27-100.77 is evident, as well as on the monthly chart to longer-term support priced at 99.67.
Charts: TradingView