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US Dollar Substantially Lower, Technicals Deteriorate

FOREX
  • Broadly in line US CPI data was not enough to support a struggling US dollar. Shortly after the release, the greenback significantly weakened with the Dollar index (DXY) reaching near two-month lows as we approach the NY close.
  • The weakness has solidified the break below its 50-day moving average that had been underpinning price action of the index since October. Furthermore, and adding weight to the technical deterioration, the Bloomberg dollar index has recently breached its 100-day MA, an indicator that had not been intersected since June 2021.
  • The softer greenback resulted in very strong one percent gains for the likes of CHF, AUD and NZD.
  • Close on their heels was EURUSD which has broken some notable levelsat 1.1383/86, Nov 30 and Dec 31 highs. Clearance has prompted a stronger short-term recovery to the initial touted target of 1.1437, the top of a bear channel drawn from the Jun 1 high. The next notable resistance point resides at 1.1514, low Nov 5.
  • CAD also picked up steam, following on from a stellar session on Tuesday. Oil prices continue to support the Canadian dollar recovery as well as multiple firms now forecasting rate lift-off as soon as the January meeting. USDCAD is close to support seen at 1.2493 (Nov 16 low) after which it would open 1.2448 (76.4% retracement of the Oct-Dec rally). Firm short-term resistance is 1.2726 (20-day EMA).
  • The dollar weakness also exacerbated some recent strength in EMFX, with the South African Rand rallying 1.5% and TRY seen back in the limelight, advancing 4.5% throughout US trading.
  • US PPI headlines Thursday’s data docket before potential comments from Fed’s Brainard - due to testify on the nomination of Vice Chair of the Federal Reserve Board of Governors before the Senate Banking Committee.
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