US Dollar defends its ground ahead of CPI

Despite geopolitical unrest, the US dollar is still strong, and Fed policymakers continue to have optimistic views of the US labor market despite worries about sluggish job creation. The market sticks to its projections from the previous week, with September being the most likely month for the first rate cut at somewhat lower odds. During Monday’s trading session, the US Dollar Index (DXY) showed persistent horizontal movement above the 103.00 level, in line with generally calm market sentiment and unchanged US stock index futures.

Market expectations for upcoming monetary policy decisions remain the same, but the US economic outlook suggests growth above trend, insinuating a potential overestimation of the market for aggressive easing in the future. Market trends from the previous week transition smoothly into the current week, with JPY and CHF underperforming on Monday, but global bond yields and equity markets are slightly boosted.

The market is still fully pricing in 100 bps of easing by year-end, extending to 175-200 bps of total easing over the next 12 months. However, this easing path seems unlikely unless the US economy sinks into a deep recession.

The DXY technical outlook remains bearish, with buyers struggling to evolve a significant move. The momentum-based Relative Strength Index (RSI) remains below 50, suggesting consistent selling pressure, and the Moving Average Convergence Divergence (MACD) remains in negative territory. Despite the week’s gains, the overall technical outlook has not significantly improved, suggesting the continuous possibility for a correction.