The US Dollar (USD) has seen a notable strengthening following the release of hotter-than-expected Consumer Price Index (CPI) data, which has pushed up U.S. Treasury (UST) yields and rekindled expectations for an interest rate hike by the Federal Reserve. Christopher Wong from OCBC has pointed out that both front-end and long-end yields have bolstered support for the USD. However, despite these developments, the composition of the CPI data does not yet indicate a widespread inflation breakout.
Wong elaborates that the USD is likely to maintain its strength on dips, particularly if market sentiment continues to favor a more hawkish stance from the Federal Reserve. This outlook is further influenced by persistently high oil prices and the potential for inflation risks to lean towards the upside. He stresses that while short-term support for the USD remains, any significant upside movement may require additional positive data surprises, sustained growth in oil prices, or a pronounced downturn in risk sentiment.
At present, the DXY, which tracks the USD against a basket of currencies, has increased, with its latest value noted at 98.30. Technical analysis shows that bearish momentum has softened, while the relative strength index (RSI) indicates a rising trend. Wong suggests that there are significant two-way risks ahead.
In terms of resistance levels, the DXY faces challenges around 98.70, which corresponds to the 38.2% Fibonacci retracement, and the 99 level, aligned with the 50-day moving average (DMA). On the downside, key support levels are anticipated at 98.10, representing a 50% Fibonacci retracement from the low to high in 2026, and further support at 97.50 to 97.60, where a double bottom and a 61.8% Fibonacci retracement converge.
Looking ahead, the next key data release for market participants to monitor is the Producer Price Index (PPI), scheduled for 8:30 PM Singapore time. The outcome of this data will be crucial in determining the future trajectory of the USD and overall market sentiment regarding inflation and interest rate expectations.
