Market Drivers: US Session

The US Dollar Index (DXY) is testing the 108.00 support level, even with rising US Treasury yields and Powell’s cautious message. The key event today is the inflation rate release, followed by another Powell testimony, MBA Mortgage Applications data, and the EIA’s weekly US crude oil inventory report. Speeches from Fed officials Bostic and Waller are also scheduled.

The US dollar retreated from three days of gains on Tuesday, approaching the 108.00 level. This occurred despite Federal Reserve Chair Powell’s cautious remarks during his semi-annual testimony and ahead of the upcoming US Consumer Price Index (CPI) release.

CPI Data, Inflation Preview:

The January Consumer Price Index Report indicates that inflation remained slightly elevated in January, partly due to rising prices for core goods like new and used cars. Although the inflation rate has fallen from its peak in 2022, it has not yet returned to the Federal Reserve’s target. The uncertain impacts of new policies under the Trump administration, such as tariffs, could exacerbate inflationary pressures in the coming months. Analysts believe a healthy labour market gives Fed officials the confidence to hold interest rates steady while waiting for more data on the path of inflation and policy clarity in Washington. Consumer prices are expected to rise 0.3% monthly in January, with the annual inflation rate holding steady at 2.9%. Some economists do predict that monthly inflation data in the first months of the year will likely come in lower due to base effects.

Forex Space

The Canadian Dollar is holding within its medium-term technical range against the US Dollar, with the USD/CAD pair pinned near 1.4300. Canadian economic data is thin and low-tier, and the market is taking US President Donald Trump’s latest trade wear rhetoric in stride. Canada saw a rebound in issued Building Permits in December, but the data is back-dated too far to be of any significance. The US Consumer Price Index (CPI) inflation print is expected to show US inflation remaining stuck near 2.9% YoY.

The EUR/USD pair recovered from a three-day losing streak, reaching a two-day high near 1.0350. Germany’s Current Account figures will be released, along with a speech by ECB’s Nagel.

GBP/USD, mirroring other risk-sensitive currencies, gained ground, surpassing 1.2400 and reaching new weekly highs. The only UK data release is a speech by BoE’s Greene.

USD/JPY continued its recovery, rising for a third consecutive day and retesting the 152.60 area. Japan’s only data point is January’s Machine Tool Orders.

AUD/USD maintained Monday’s positive momentum, though a move towards the 0.6300 resistance level has yet to materialize. Australian Home Loans and Investment Lending for Homes data will be released.

Commodities

WTI crude oil prices rose for a third straight day, exceeding $73.00 per barrel due to renewed supply concerns.

Gold prices briefly surged past $2,940 per ounce troy, but quickly retreated due to profit-taking. Silver prices declined, erasing Monday’s gains and falling below $32.00 per ounce.