The US Dollar Index (DXY), which measures the strength of the US Dollar against a basket of six major currencies, is seeing a softening in momentum after the release of the December Producer Price Index (PPI) report, which came in weaker than expected. This has contributed to a decline in the DXY, with the index fading further on Tuesday.
Key Developments:
The December PPI came in softer than expected, with both the core and headline readings showing slower-than-anticipated growth. This has raised expectations that inflationary pressures may be easing, and in turn, expectations for a more dovish stance from the Federal Reserve.
Additionally, comments from President-elect Donald Trump’s team regarding the gradual implementation of tariffs have added uncertainty, as markets digest the potential inflationary impact of these policies.
Key Levels:
Upside Resistance:
The 110.00 level remains a critical resistance level. A breakthrough here could pave the way for a more sustained upward move.
Beyond 110.00, the 110.79 level is the next significant resistance point.
Should the DXY break these levels, it could eventually target 113.91, which marks a double top from October 2022.
Downside Support:
On the downside, the DXY is currently eyeing support around 109.00, which aligns with an ascending trend line from December 2023.
If the DXY breaks below this level, the next major support zone would be around 107.35. Below this, 106.52 and the 55-day Simple Moving Average (SMA) at 106.92 will provide additional support.
Market Sentiment:
Volatility in the DXY is expected to increase, driven by ongoing developments in US politics and comments from President-elect Trump. This could lead to frequent knee-jerk reactions and market shifts, making the outlook uncertain and prone to rapid changes.
US yields have softened, with the 10-year yield trading around 4.794%, after hitting a 14-month high on Monday. This aligns with a more cautious outlook for the dollar as inflationary pressures appear to be moderating.
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