Take a look at the 4-hour dollar index (USDX) futures chart. We see very strong consolidation in a narrow range (blue rectangle).
Consolidation occurs at the bottom of the ascending channel. And the way out of this consolidation will determine the behavior of currencies relative to the dollar in the near future.
The hourly chart of the dollar index shows that consolidation continues for the sixth day and now the futures price is trading in the middle of the range.
Although Donald Trump and his Tweets have been the main news maker of recent times, today’s inflation data may well bring the dollar out of a narrow range.
Inflation in the United States steadily declined to the last value of 1.6%.
However, the expert forecast provides for its further growth and return to the goal of 2%.
Today planned data on CPI inflation of 1.7%. If investors do not see a steady increase in inflation, then forecasts of a further decrease in interest rates will receive an additional trump card (“trump card” is a great pun). This should reflect on the prospects of the US dollar on forex and it will be under pressure..
A very interesting situation on the 10-year US bonds yield (US10Y).
At the moment, their yield is 1.632%. And this is with the effective rate on the Federal Funds at 2.4% (blue line on the graph). This means that the real yield on bonds (minus current inflation of 1.6%) for their owners at the moment is 0.032%. And the yield is very close to the indicators that were at the Fed rate of 0.5%. This all means that the market is realizing a further significant reduction in interest rates in the United States.
Currently, the Fed rate futures rate the rate cut at the September meeting of the Fed to the range of 1.75-2.00% with a probability of 75.4%. And a further reduction in the rate in October to 1.50-1.75% with a probability of 61.5%.
If the situation develops according to the scenario of a decrease in inflation in the USA (or the absence of its growth), in spite of avoiding risks, the US dollar will come under strong pressure and this will lead to its decrease relative to other currencies.
Recommendations: follow the behavior of the dollar index and the direction of its exit from the rectangle, follow the data on inflation in the United States. And it is imperative to monitor the behavior of the yield on US government bonds, although, as statistics show, the market does not really manage to predict the future actions of the Fed.