Through January the DXY traded to the downside following the release of several positive key economic data, increasing the market sentiment that the US Federal Reserve would pivot from its current monetary policy stance, to slow down/stop further interest rate hikes.
Notable US news events in January
-Non-Farm Payroll (NFP) was greater than expected (Actual: 223k Forecast: 200k), while wage inflation fell (Actual: 0.3% Forecast: 0.4%), together with the unemployment rate (Actual: 3.5% Forecast: 3.7%). This caused the DXY to reverse strongly from the 105.60 price area to trade steadily lower, down to the 103 price level.
- Consumer Price Index (CPI) data was released at 6.5% (Previous: 7.1%) which indicated a slowdown in inflation growth for the US economy. Again, another factor that signaled the potential for a slowdown in future rate hikes from the US Federal Reserve, with markets forming the view that previous interest rate hikes are starting to take effect, slowing down inflation growth. The DXY broke through the 103 support level to trade within the current range.
Since mid-January, the DXY has been trading between the price range of 101.50 and 102.50 as the price consolidates just above the key support level of 101.30 (the previous swing low from June 2022)
So, where could the DXY move to in February?
Volatility for the DXY is likely to come early in the month due to these news events
1) Federal Funds Rate, FOMC Statement, and FOMC Press Conference on 2nd February. The Feds are widely expected to hike rates by 25bps to take interest rates to 4.75%. Pay more attention to the accompanying statement and press conference for hints (keyword: sufficiently restrictive) and guidance (keyword: peak rates) over future interest rate decisions.
The previous Federal Reserve rates decision in December saw the DXY trade slightly lower, forming a base along the 103.50 support level before trading higher a day later toward the 104.80 price level.
A similar move could be anticipated, upon the release of the news, with the DXY possibly trading lower to test the key support level of 101.30 before potentially trading higher toward the 103 resistance level.
2) The NFP this month is unlikely to have a similar impact to what happened in January. This is because, with the current unemployment rate at 3.5% and wage growth at 0.3%, it would be unlikely that the data could be released significantly better.
Therefore, IF the DXY does trade higher to the 103 resistance level after the Fed's interest rate decision, a "non-event" on the NFP could see the price continue to trade higher.
3) After the NFP, the next key economic data to be released is the CPI data on the 14th of February. If the data continues to show a slowdown in inflation growth (lower than 6.5%), this could have a significant impact on bringing the DXY lower again.
While there will be other news events throughout the month ahead, which will cause prices to spike or dip briefly, the 3 discussed above would most likely be the key factors to determine the next directional bias of the DXY.
Beyond the 101.30 support level, the next key support area is at the round number level of 100.00. The immediate resistance level is at 103.00 and the next key resistance level above that is 105.50.
Notable US news events in January
-Non-Farm Payroll (NFP) was greater than expected (Actual: 223k Forecast: 200k), while wage inflation fell (Actual: 0.3% Forecast: 0.4%), together with the unemployment rate (Actual: 3.5% Forecast: 3.7%). This caused the DXY to reverse strongly from the 105.60 price area to trade steadily lower, down to the 103 price level.
- Consumer Price Index (CPI) data was released at 6.5% (Previous: 7.1%) which indicated a slowdown in inflation growth for the US economy. Again, another factor that signaled the potential for a slowdown in future rate hikes from the US Federal Reserve, with markets forming the view that previous interest rate hikes are starting to take effect, slowing down inflation growth. The DXY broke through the 103 support level to trade within the current range.
Since mid-January, the DXY has been trading between the price range of 101.50 and 102.50 as the price consolidates just above the key support level of 101.30 (the previous swing low from June 2022)
So, where could the DXY move to in February?
Volatility for the DXY is likely to come early in the month due to these news events
1) Federal Funds Rate, FOMC Statement, and FOMC Press Conference on 2nd February. The Feds are widely expected to hike rates by 25bps to take interest rates to 4.75%. Pay more attention to the accompanying statement and press conference for hints (keyword: sufficiently restrictive) and guidance (keyword: peak rates) over future interest rate decisions.
The previous Federal Reserve rates decision in December saw the DXY trade slightly lower, forming a base along the 103.50 support level before trading higher a day later toward the 104.80 price level.
A similar move could be anticipated, upon the release of the news, with the DXY possibly trading lower to test the key support level of 101.30 before potentially trading higher toward the 103 resistance level.
2) The NFP this month is unlikely to have a similar impact to what happened in January. This is because, with the current unemployment rate at 3.5% and wage growth at 0.3%, it would be unlikely that the data could be released significantly better.
Therefore, IF the DXY does trade higher to the 103 resistance level after the Fed's interest rate decision, a "non-event" on the NFP could see the price continue to trade higher.
3) After the NFP, the next key economic data to be released is the CPI data on the 14th of February. If the data continues to show a slowdown in inflation growth (lower than 6.5%), this could have a significant impact on bringing the DXY lower again.
While there will be other news events throughout the month ahead, which will cause prices to spike or dip briefly, the 3 discussed above would most likely be the key factors to determine the next directional bias of the DXY.
Beyond the 101.30 support level, the next key support area is at the round number level of 100.00. The immediate resistance level is at 103.00 and the next key resistance level above that is 105.50.
Comment:
Leading up to the CPI data release, DXY is trading along the 103 price level, read the detailed analysis here
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