Dollar Index Analysis and Path Ahead

Evening Update: Will the Dollar Index (DXY) continue to strengthen amid higher-than-expected CPI figures ?

 

Today's much-awaited CPI figures arrived, and it was hotter than predicted. Much to the dismay of Fed Chair Powell, the CPI comes in HIGH. US CPI inflation jumped 0.3% in the month, exceeding estimates of a 0.2% increase. Headline CPI rose 3.1% year on year, falling from 3.4% in December but much exceeding the 2.9% forecast. The U.S. core CPI grew 0.4% month on month, exceeding expectations of 0.3%. Core CPI rose 3.9% year on year, matching the December increase and falling short of forecasts for a 3.7% gain.

US CPI inflation is significantly higher than what the Fed considers sustainable with its 2% goal range. Furthermore, core inflation is proving to be more persistent than projected. Taking everything into account, the Fed's inflation war is far from over. Contrary to the market's expectation of a May rate decrease, I predict one will occur in September, as inflation takes longer to return to the Fed's 2% target than many had anticipated. 

Last month, the Dollar Index (DXY) was trading near a solid support level of 100.50 to 100.80, but it recovered well and reached 104.50. This zone provided strong support for the Dollar Index, which the price attentively monitored before exploding far past it. Previously, between February and May, the 100.50-100.80 zone provided consistent support. The DXY recovered immediately after that, trading between 106.50 and 107.00.

The US Dollar Index (DXY) has seen some selling pressure, falling from weekly highs of 104.50. We'll go over all of this using a chart and several time frames. Please have a look.

 

• DXY has a strong support range of 100.50-100.80.
• Based on historical trends, the DXY may climb to 105.50-107. 
• The chart shows a probable triple bottom between 100.50 and 100.80, and the DXY has gradually risen since testing this important support. 

 

Please refer to the crucial support zone illustrated in the diagram above. The Dollar Index rose as bulls successfully held the 100.50-100.80 level. As we saw in 2023, the Dollar Index appears to trade mostly horizontally within the band of 100.50 to 105.50. DXY may soon trade in the 105.50-107 range.

The preceding CPI data boosted dollar bulls, followed by unemployment claims data, and the index jumped from 102.20 to 104.50. Today's CPI report fueled Dollar Bulls.

 

Please look at the chart to understand its significance. The Dollar Index (DXY) has broken out of a short-term supply zone around 104.50 and pushed higher. Any decrease towards the 102.50-103.00 level would be an excellent opportunity to go long in the Dollar Index.

Last week, initial unemployment claims rose more than expected. Initial unemployment claims rose by 224K from a week ago. Continuing unemployment claims also outperformed estimates.

Using charts and statistics, we can infer that the DXY is bullish and headed for the 105.50-107.00 zone. It may return to the 102.50-103.00 level in the immediate term, but each down move provides an opportunity for bulls to propel prices higher into the 105.50-107.00 range.

 

Please see the weekly chart of the Dollar Index (DXY) for support and resistance levels. Every level is represented by a spot chart.

 

Dollar Index	Support	Resistance
Level 1	100.50	105.50
Level 2	99.50	107.00