October Inflation Data Could Send Dollar To New Highs

Dollar Back On Track, U.S. Inflation Data Up Next

by Bogdan Giulvezan

Last week the US Dollar Index (DXY) hit fresh yearly highs in the aftermath of the latest Fed meeting that marked the beginning of the much-anticipated reduction of asset purchases. The Fed decided to taper the quantitative easing programme by $15 billion each month; it had been buying $120 billion worth of Treasury bonds and mortgage-backed securities every month.

The Non-Farm Payrolls report released Friday showed that the economy added 531,000 new jobs last month, partly due to a lower number of COVID-19 cases, showing that the U.S. economy is regaining momentum. The greenback gave back some of Friday’s gains made against the Euro and other peers but this week we’ll be focusing on inflation and other important U.S. economic data, which could add more fuel to the fire.

Key Events for the Week Ahead

Monday, November 8, a few U.S. key policymakers will speak at various events, including Fed Chairman Powell, Fed Vice Chairman Richard Clarida, and Fed Governor Michelle Bowman. The speeches are scattered throughout the day, thus we may see volatile price action on US Dollar pairs.

Tuesday, November 9 at 1:30 pm GMT, the U.S. Producer Price Index will be released, showing changes in the price of goods and services sold by manufacturers. The expected reading is 0.6%, a slight increase from the previous 0.5%. Half an hour later, Fed Chair Powell will deliver another speech.

The main event of the week will be the release of the U.S. CPI and Core CPI, scheduled for Wednesday at 1:30 pm GMT. The Consumer Price Index is one of the main gauges of inflation in the U.S. and the Core version excludes food and energy from calculation; the Fed tends to pay more attention to the latter because it is less volatile. The CPI is expected to show a 0.5% change from the previous 0.4% while the Core version is expected to increase 0.4% from last month’s 0.2%.

Thursday the U.S. banks will be closed in observance of Veterans Day and the final notable release of the week comes Friday in the form of the U.S. Consumer Sentiment survey released by the University of Michigan.

Technical Outlook – EUR/USD

The pair is currently trading at 1.1570 and is ticking up, with Friday’s candle showing a big wick in its lower part, which is a sign of rejection. However, after the bounce at the upper border of the diagonal channel, the bears have been mostly in control, and the last big actions belonged to them.

The MACD and RSI are mostly flat, which shows that momentum is starting to fade a bit, but as long as the pair remains below 1.1600 – 1.1615 resistance, the overall bias favors the US Dollar. A break of the confluence zone created by the 50 days MA, the mentioned resistance levels, and the bearish trend line would shift the balance of power but unless that happens the pair is poised to drop lower into 1.1500 territory.