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US Dollar Range Continues as Inflation Prints at One-Year Highs

US Dollar Range Continues as Inflation Prints at One-Year Highs

Talking Points:

Fundamental Forecast for USD: Neutral

The Quarterly Forecast for the US Dollar has just been released for Q2, Click here for full access to the DailyFX Q2 Forecasts.

The US Dollar started the week on a rough note, continuing the bearish move that started to show around last Friday’s Non-Farm Payrolls report. In short order, DXY had fallen back-below the 90.00 level, and bears remained in force all the way into Wednesday’s US session, at which point a bit of support began to show at a familiar area around 89.50. This was the same zone that held the lows in the Greenback for the first few weeks of March, and this led into a corrective move as prices moved back towards the 90.00 level. The net of this week’s price action has been an indecisive move lower as the intermediate-term range continued.

US Dollar Eight-Hour Chart: February/March Range Continues into April

Chart prepared by James Stanley

US Inflation at One-Year Highs as USD Weakness Stokes Higher Prices

There was a big driver unveiled on Wednesday that helped that support to come into play, and that was the release of US inflation numbers for the month of March. That report showed strength in inflation as both headline and core CPI came-out at one-year-highs, and both data points were above the Fed’s 2% inflation target. Headline inflation remains strong, as we’ve now seen seven consecutive months of inflation at two-percent or more; and even core CPI has crossed the 2% marker, making a stronger case for that fourth hike this year out of the Fed.

US CPI Prints at One-Year Highs; Seven Consecutive Months At-or-Above the Fed’s 2% Target

prepared by James Stanley

Currency Weakness Brings Stronger Inflation – But Lacking Follow-Thru

Normally, stronger rates of inflation bring strength into a currency as market participants look to capture the new, higher rate of return. This is the ‘carry trade’ and it’s one of the most attractive strategies in FX markets when it’s actually at work. That theme has been noticeably missing from the US Dollar over the past year. The Fed remains hawkish and continues to look at tighter policy options. But the US Dollar has continued to show weakness, selling-off by as much as 15% from last year’s high to this year’s low. This indicates that there’s another driver at work, at least on a longer-term basis, that’s acting as a hindrance to a stronger bullish advance. We’ve discussed this multiple times in the recent past, and this point remains as pertinent as we move deeper into 2018.

Next Week’s Economic Calendar

Next week’s economic calendar is noticeably light on US issues. The lone high-impact report that we receive is on Monday morning ahead of the US equity open, and this is the release of retail sales numbers for the month of March. This could certainly help to evoke some near-term volatility in the Greenback, as this is the first look we get at consumer behavior for the most recently completed month; but it’s unlikely to carry enough force to alter the longer-term or bigger picture move. The big question around that release is whether it can help the Dollar firm long enough for resistance to come into play, at which point the bigger-picture down-trend becomes attractive again for continuation.

DailyFX Economic Calendar: High-Impact USD Events for Week of April 16, 2018

prepared by James Stanley

Fundamental Forecast for Next Week

The fundamental forecast for the US Dollar will be set to neutral for next week. While the longer-term bearish trend remains attractive, strength in this week’s inflation print makes the prospect of another hike out of the Federal Reserve this year a bit more likely; and this makes the prospect of a ‘squeeze-type’ of scenario in USD a bit stronger. The Dollar sold-off after the March rate hike as the Fed shared an expectation for an additional two hikes in the year; but the dot plot matrix looked very close to a median expectation of an additional three moves. This week’s inflation print highlights even more price pressure in the United States after last year’s sell-off in the Dollar, and this could put even more motivation behind the argument for three additional hikes (for a total of four in the calendar year of 2018) for this year out of the Fed.

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

--- Written by James Stanley, Strategist for

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.