US Dollar Commentary - Monday, April 15

Fading Fed Easing Expectations

The US Dollar is starting the week on a softer footing as traders brace for the next set of US data points with retail sales and empire state manufacturing due later today. The Dollar Index was seen breaking out to fresh highs for the year last week as trades scaled back near-term US rate-cut expectations on the back of a further hotter-than-forecast US inflation reading. At 3.5% annualised, CPI remains well above the bank’s 2% target and has risen for three consecutive months now.

While this remains the case, traders fear rate cuts will be delayed until later in the year with September now seen as the likely start time for easing. However, the risk is that if inflation remains strong the Fed might ultimately ease less-than-forecast this year, keeping USD supported for now.

 

Safe-Haven Demand

Alongside hawkish Fed risks, USD is also being supported through increased safe-haven inflows as traders watch growing geopolitical risks around the world with caution. Fears of a wider conflict emerging in the Middle East are a big driver of safe-haven demand currently and with the situation remaining highly volatile, USD looks likely to continue to find support through this channel.

 

Today’s Data

Looking ahead to today’s data, retail sales is forecast 0.5% on core, up from 0.3% prior and 0.4% on headline, down from 0.6% prior. Empire state is forecast at -5.2 up form -20.9 prior. If we see any upside surprise in these readings today this should help drive USD higher over the start of the week.

 

Technical Views

 

DXY

The rally in the index has seen price breaking out above the 104.95 level to hit its highest point since November last year. While above 104.95 and with momentum studies bullish, the focus is on a continued push higher and a test of the 107.04 level next. 


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