US Dollar Touch Softer after CPI Comes in as Expected

• The US Dollar trades flat and sees its rally stalling after CPI release.
• The recent CPI numbers still make a December rate cut possible.
• The US Dollar index trades above 106.00, around a fresh six-month high. 

The US economic calendar is having one of its focal points for this week with the release of the US Consumer Price Index reading for October. Despite the very narrow ranges, all numbers came in line of expectations. That explains the muted reaction in the Greenback on the numbers. 

Digest market movers: CPI in line of expectations

The Mortgage Bankers Association (MBA) kicked off this Wednesday’s calendar at 12:00 GMT  with its weekly Mortgage Applications tracker. This week applications rose marginally by 0.5% against the steep fall last week by 10.8%. 

The US Consumer Price Index (CPI) release for October came in as no surprise:

• Monthly headline inflation remained stable at 0.2%, and the yearly reading ticked up to 2.6% from 2.4%.
• Monthly core inflation remained unchanged at 0.3%, with the yearly figure also stable at 3.3%.
• Equities are looking for direction after their lacklustre performance on Tuesday. Marginal gains and losses are seen in both the European and US equity markets.
• The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 62.4%. A 37.6% chance is for rates to remain unchanged. While the rate-cut scenario is the most probable, traders have pare back some of the rate-cut bets compared with a week ago.
• The US 10-year benchmark rate trades at 4.38%, dropping lower after the CPI release.

US Dollar Index Technical Analysis: Profit taking underway

The US Dollar Index (DXY) is adding more gains to its rally. That makes sense seeing where US yields are trading since this summer. The main issue could be that the trading is starting to overheat, increasing the chances of a correction soon under some profit taking. 

All eyes are now on 106.52, the high of April and a double top, as it would mean a fresh 2024 high. Once the level would snap, 107.00 comes into play with 107.35 the next pivotal level to look out for.

On the downside, the round level of 104.00 and the 200-day Simple Moving Average (SMA) at 103.88 should refrain from sending the DXY any lower. Before that level, there is not much in the way with maybe some slim support at 104.63 (high of October 30).