DXY above 108; waiting for the inflation update!
DXY increased above 108 overnight and before cooling down to 108.30 area, tested 20 years high above 108.50. One of the leading market drivers for DXY was the last week's NFP numbers. According to a nonfarm payroll report, the US labor market hired much more than expected. This growth in the labor market, along with higher inflation, increases the market expectation for a 75 basis points rate hike at the next FOMC meeting.
Yesterday, Atlanta Fed President Bostic also supported the aggressive rate hike in his speech. He believes the US economy will not suffer long-term damage from these rate hikes. In addition, USD safe-haven demand also boosts the dollar to some extent. With this news and economic data, expecting the bull rub to go forward is more logical. For now, and while market participants are waiting for inflation data on Wednesday, bulls are likely to continue their rally.
On Wednesday, market participants are waiting for US inflation data. CPI is expected to increase by 8.8%, from 8.6% previously. The monthly rate after seasonal adjustment is expected to remain the same as the previous number, at 1.0%. From a macro perspective, the New York Fed survey showed US consumers expect median inflation of 6.8% over the next year, the highest reading since the survey began in 2013. Also, most US consumers expect three-year median inflation to moderate to 3.6 percent, down from 4.2 percent in last October polls.
Looking at these numbers tells us that recession is undeniable. With these estimates, the USD still should stay strong and attract demand.
From the technical point of view, 105.30 is the 20 DMA and strong support. For now, estimates are above this level. On the flip side, breaching under this level can open the doors for 103.70, which is unlikely for now.
