DXY: Momentum trade – OCBC

The US Dollar (USD) dipped post-CPI (which came in largely in line with estimates) but the dip was short-lived. Bullish momentum eventually saw USD trading fresh highs for the year. DXY was last at 106.70 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Daily momentum is bullish

“Price action demonstrates how markets are still adjusting their expectations with regards to Fed cycle (as more Fedspeaks come), inflation in light of Red sweep outcome and Trump’s policies. More nomination is coming through and the narrative is that Trump may hit the ground running in Jan 2025, unlike in 2016 when he was less prepared. Tariff risk and Trump policy uncertainty may continue to keep Trump trade (i.e. long USD, short CNH) supported in the interim.”

“On Fedspeaks overnight, Logan calls that policymakers should more at a slow pace given uncertainties about how restrictive monetary policy is. Schmid also sounded a note of caution saying that it remains to be seen how much further interest rates will decline or where they might eventually settle. He also warned about higher government debt may weigh on growth and drive rates up and depth of eventual Fed cut remains undetermined. More Fedspeaks are lined up this week, including Powell (Fri).”

“Daily momentum is bullish while RSI rose. Near term risks skewed to the upside. Resistance here at 106.50 levels (2024 high) before 107, 107.40 (2023 high). Support at 105.60 (76.4% fibo), 104.50/60 levels (21DMA, 61.8% fibo retracement of 2023 high to 2024 low). For the day, PPI is due.”