DXY Drops to Two-Week Low as Traders Await Crucial US Inflation Figures
The US Dollar Index (DXY) has been under selling pressure for two consecutive days and dropped to its lowest level in over two weeks during the Asian session on Tuesday. The index currently trades around 98.80, down 0.10% for the day, but holds above a three-month trough touched in August as traders await this week's US inflation figures.
The crucial data includes the US Producer Price Index (PPI) and the Consumer Price Index (CPI), which will be published on Thursday and Friday, respectively. These numbers will provide more cues about the US Federal Reserve's policy path, which will determine the near-term trajectory for the US Dollar (USD).
The recent pullback in DXY is also attributed to a surging Japanese Yen (JPY). The better-than-expected US Nonfarm Payrolls (NFP) report released last Friday increased the chances of a Fed rate hike at the September 15-16 meeting amid inflation risks from elevated energy prices.
Analysts at OCBC describe the latest US payrolls report as 'supportive of the USD at the margin, but not sufficient on its own to drive a sustained leg higher.' They expect that markets will require firmer inflation evidence before pricing a September hike with greater conviction. Focus therefore shifts to this week's CPI, where an upside surprise could provide the catalyst for renewed USD strength.
The technical analysis of DXY shows that it maintains a bearish near-term tone beneath the 200-day Exponential Moving Average (EMA) at 99.52 and the key Fibonacci retracement band above 99.00. The loss of the 61.8% retracement at 99.23 leaves the index capped by a dense overhead cluster.