DXY: Watching US data this week – OCBC

US Dollar (USD) eased slightly from the year’s high after while FX flows gradually normalised post-holiday liquidity. DXY was last seen at 108.63. On Fedspeaks, Barkin said they would keep interest rates restrictive for longer if inflation gets stuck but so far the path has been towards 2%, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Potential bearish divergence on daily RSI

“After a 100-basis point recalibration of the benchmark rate in 2024 it would be sensible to cut again if new data show inflation has sustainably fallen to 2% or if weak demand ensured inflation would fall too. Daly and Kugler stressed that the Fed must continue to battle against post-pandemic price surges while noting progress in lowering price pressures over the past 2 years.”

“Markets are largely expecting Fed to pause at the upcoming FOMC (29 Jan). For the year, markets have already adjusted their expectations – now expecting only 38bp cut in total (less than 2 cuts). There is a slew of data this week, including JOLTS job openings, ISM services (Tue); ADP employment (Wed); FOMC minutes (Thu) and payrolls report (Fri).”

“Given that USD has enjoyed a significant run-up, we caution that downside surprise to US data, in particular payrolls report, may dent USD’s momentum. Daily momentum is mild bullish while RSI eased lower from overbought conditions. Potential bearish divergence on daily RSI observed. Pullback lower not ruled out. Support at 108.60, 107.60 (21 DMA). Resistance at 109.50 levels (recent high), 110.10 levels.”