US Dollar Volatility Primed to Move with CPI, FOMC Within Touching Distance

US Dollar (DXY) Price and Chart Analysis

• US Inflation is expected to nudge lower in November.
• The US dollar is stuck in a short-term range and waiting for a driver.

The latest US inflation report (November) will be released today at 13:30 GMT. The annual core inflation rate is seen dropping to 6.1% from 6.3% in October, while the headline rate is seen easing to 7.3% from 7.7% in the previous month. Any easing of US price pressures will be welcomed by the Federal Reserve which announces its latest monetary policy decision on Wednesday at 19:00 GMT. Markets are currently pricing in a 50 basis point rate hike tomorrow.

One report that was released yesterday, The New York Fed Survey of Consumer Expectations, showed median one-year interest rate expectations falling sharply from 5.9% to 5.2%, while three- and five-year expectations slipped 0.1% lower to 3% and 2.3% respectively. A read across to today’s CPI report may see the rate of inflation slowing by more than currently expected.

New York Fed Survey of Consumer Expectations

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Short-dated US Treasury yields are also biding their time with the two-year UST currently trading at 4.38%, the neckline level of the recent head and shoulders pattern. If the two-year breaks below the 4.26% to 4.18% area, then 4.08% to 4.00% becomes the next landing zone.

The Head and Shoulders Pattern: A Trader’s Guide

US 2-Year Treasury Yield Daily Chart – December 13, 2022

The US dollar has barely moved this week and sits in the middle of a medium-term support zone. The greenback continues to trade below all three moving averages – a bearish outlook – while the 14-day Average True Range (ATR) – a measure of volatility – is currently resting at a multi-week low. If today’s CPI print deviates from expectations, or if chair Powell gives a clear hint on future US monetary policy at tomorrow’s FOMC press conference, then expect the US dollar to break out of its recent torpor, and quickly.

US Dollar (DXY) Daily Chart – December 13, 2022

Charts via TradingView

What is your view on the US Dollar – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.