Dollar Struggles for Bullish Momentum After CPI: What’s Next for USD and Major Currency Pairs?

Dollar Struggles for Bullish Momentum After CPI: What’s Next for USD and Major Currency Pairs?

Yesterday's Consumer Price Index (CPI) report brought some positive news for the Dollar, signaling a potential shift in market sentiment. Inflation rose from 2.9% to 3% year-over-year, aligning with last week’s red-folder economic data that hinted at rising inflation pressures in the U.S.

This increase in inflation could play a significant role in the Federal Reserve's next move. With the rate edging higher, the question now is whether the Fed will continue with its anticipated rate cuts Q3 to Q4 this year or reconsider its stance. A more hawkish approach may be on the table if inflation continues to climb.

Investors and analysts alike will be closely watching future economic data releases, as yesterday’s CPI print suggests that the inflation battle is far from over. As the Dollar gains strength, market participants are left speculating on the Fed's next move.

Technical Overview of the Dollar: No Bullish Follow-through Yet

The USD remains at a crossroads, showing no decisive strength even after the recent CPI release. While it initially surged, attempting to break out of its previous range, the lack of follow-through momentum is evident.

What’s Holding Back the Dollar? 

The challenge we’re facing now is the lack of follow-through momentum.

While the CPI numbers suggest a potential shift from a dovish to a more hawkish stance by the FED—potentially boosting the Dollar’s strength—there’s a complication. Higher inflation isn’t necessarily positive when compared with rising unemployment. This concern is heightened by last week’s NFP report, which came in lower than both the previous figure and market expectations.

As of now, scenario #2 is still in play. Check out the analysis here.

Impact on Major Currency Pairs

AUD: Waiting for a Breakout

Daily

No major high has been tapped yet as of now for us to propel to the downside.

The AUD remains above the 50% range level, showing no major high tapped yet to propel a downside move. If the Dollar fails to gain momentum, AUD could target the 6.63305 level.

Key Driver: RBA Interest Rate Decision

Next week’s key driver for the AUD will be the RBA’s Interest Rate Decision, with a 25-basis point rate cut widely anticipated. While cooling inflation opens the door for potential rate cuts, the RBA must balance this with a resilient employment sector.

Potential Impact:

• If the rate cut is confirmed, the AUD is likely to decline as lower yields make it less attractive compared to the USD, especially if the Federal Reserve maintains a more hawkish stance.

NZD: Momentum Still Lacking

The NZD remains at the equilibrium level, indicating that momentum hasn’t picked up yet. As of now, Dollar strength is still evident against the NZD.

EUR: Bullish Momentum Continues

Daily

The EUR filled the imbalance created by the CPI drop but quickly rebounded, showing no sustained weakness. Currently, the EUR is on a bullish sequence, and if the Dollar fails to gain strength, a liquidity draw at the 1.05331 level could be expected.

GBP: Eyeing Upside Potential

Daily

GBP shows the potential for an upside move, possibly drawing towards the 1.25497 level. However, this depends on whether the Dollar can capitalize on the favorable CPI numbers despite conflicting unemployment data.

The GBP reacted positively after filling the H4 imbalance. If the 1.23775 support level holds, the upside potential remains intact.

EURGBP: Bullish Development Inside Range

Daily

EURGBP is currently in a small sideways movement but shows a bullish development within its micro range. The pair is above equilibrium on the H4 timeframe, indicating an increased bullish stance for upside potential.

Upcoming News for GBP that could also impact EUR

Trading Strategy for EUR and GBP (Using EURGBP as a Baseline)

1. USD Bullish; EURGBP Bullish: Short GBP more than EUR (EUR less prone to whipsaws).
2. USD Bullish; EURGBP Bearish: Short EUR more than GBP (GBP less prone to whipsaws).
3. USD Bearish; EURGBP Bullish: Long EUR more than GBP (GBP less prone to whipsaws).
4. USD Bearish; EURGBP Bearish: Long GBP more than EUR (EUR less prone to whipsaws).

This strategy can also be applied to AUD & NZD, CAD & CHF, using USD as the third currency baseline.

CAD: Steady Amid USD Concerns

Daily

GAS

Despite uncertainties surrounding the USD due to low unemployment numbers and potential rate cut plans, the CAD remains steady. Strength in commodities like Natural Gas supports a bullish outlook for the Canadian Dollar.

CHF: Awaiting USD’s Next Move

Daily

No significant movement for the CHF as the USD remains relatively strong against it. Further development depends on whether the Dollar can maintain its bullish momentum or shift bearish in the coming weeks.

The USD remains in a state of limbo, showing no decisive follow-through momentum despite the favorable CPI release. As the market digests inflation data alongside conflicting employment figures, the next moves by the Federal Reserve will be crucial in determining the Dollar’s direction.

"Patience is the key to profit. The market pays those who wait for the right moment.”

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