The US Dollar (USD) traded within a relatively subdued range overnight as there was a lack of a key catalyst. With Fedspeaks entering a blackout period, the focus now shifts to economic data ahead of the Federal Open Market Committee (FOMC) meeting scheduled for next Thursday (19 December). The US Dollar Index (DXY) was last recorded at 106.35, as noted by OCBC’s FX analysts Frances Cheung and Christopher Wong.
A Bearish Chart Setup Emerges
This week, the release of the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday will be closely watched. A 25 basis points (bp) cut by the Federal Reserve seems more or less certain for the December meeting, unless the US CPI data unexpectedly shows a significant upward surprise. Market participants will also be eager to see the dot plot guidance for 2025. Currently, Fed fund futures are suggesting around 3 interest rate cuts for 2025, which is slightly fewer than the 4 cuts previously indicated in the dot plot for the same year.
The daily momentum is mildly bearish, and the Relative Strength Index (RSI) is flat. What’s notable is that a head and shoulders pattern appears to have formed on the charts, with the DXY testing the neckline, which held firm last Friday. Typically, this is considered a bearish setup. If there is a decisive break below the neckline, it’s likely that the bears will gain more momentum.
In terms of key levels, there is support at the 105 levels (which represents the 38.2% Fibonacci retracement of the September low to the November high), 104.60 (the 50-day Moving Average), and 104.10 (the 200-day Moving Average and 50% Fibonacci level). Resistance can be found at 106.70 (the level of the second shoulder).
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