Eyes 100-day SMA ahead of US CPI data :: InvestMacro

• Traders pricing in 85% prob of Fed cut in November

• Over past year, US CPI triggered ↑ 0.8% & ↓ 0.6%

• Technical levels – 100 & 200-day SMA

Dollar bulls continue to dominate the G10 space, crushing all obstacles.

A mixture of geopolitical risk and cooling Fed cut bets continue to support upside gains.

And the dollar could see more volatility this afternoon thanks to the incoming US inflation data.

US inflation is expected to cool further in September, supporting expectations around lower US interest rates. However, last Friday’s strong jobs data has extinguished hopes around another jumbo-sized cut by the Fed.

In fact, traders are now pricing in an 85% probability of a 25-basis point cut by November with a 77% probability of another 25bp cut by December.

Beyond the CPI report, it will be wise to keep an eye on other US data and speeches by numerous Fed officials which could provide more clues on the Fed’s policy path.

Golden nugget: Over the past 12 months, the US CPI report has triggered upside moves of as much as 0.8% of declines of 0.6% in a 6-hour window post-release.

Taking a look at the charts, the USDInd is firmly bullish on the daily charts with prices hitting a fresh two month high. The index has gained roughly 2% since the start of October, taking its YTD gains to 1.6%.

After shedding almost 5% in Q3, dollars bulls could stage a return this quarter if bets around lower US interest rates continue to fall.

Since securing a solid close above 101.94, bulls have their eyes on the 100-day SMA at 103.30. However, the Relative Strength Index (RSI) is signalling that prices are near overbought territory.

• A hotter-than-expected US CPI report that dampens Fed cut bets may push the dollar higher. Key levels of interest can be found at 103.30 and the 200-day SMA at 103.80.

• A cooler than expected US CPI report may move prices back below 101.94.