The Fed could change its approach in combating inflation after the July’s CPI came in lower than expected

The US dollar has been retaining bullish bias for the fourth session in a row on Tuesday, extending the bounce from late-June lows seen last week around 104.65. The USD index is now back above the 106.00 figure, challenging the 106.50 zone on the way towards 107.00.

Still, the upside potential looks limited at this stage as the overall market sentiment has improved since yesterday, this capping demand for the safe-haven greenback. Following solid gains on Wall Street, Asian equity markets advanced on Tuesday, with investors cheering an unexpected decision by the People’s Bank of China to cut rates to support the economy. Earlier, the dollar received a boost from weak industrial production and retail sales data out of China as disappointing figures added to recession worries.

Persisting concerns over slowing global growth could keep the buck elevated at this stage even as stock markets gain. Traders now shift their focus to fresh US economic highlights this week, including retail sales and the Fed’s meeting minutes due on Wednesday.

The US dollar could come under pressure in the coming days should the central bank express a greater willingness to implement less aggressive rate hikes down the road as the monetary authorities could change their approach in combating inflation after the July’s CPI came in lower than expected.

Technically, the USD index could challenge the 106.80 next intermediate resistance should the upside momentum persists in the near term. However, the selling pressure may reemerge after the FOMC meeting minutes. Anyway, the elevated volatility will continue to persist in the days to come, so short-term traders should be cautious when making trading decisions.

In a wider picture, the US currency remains within a broader bullish trend, albeit holding off multi-year tops seen last month above 109.00. On the downside, a major support arrives at 101.30, followed by the 100.00 psychological level last seen in April.  


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