The dollar's positive reaction to the latest CPI figures on Tuesday was pretty much enough to test the May 2023 high (DXY104.70). Beyond that, however, the dollar has not been able to benefit any further so far. Ultimately, despite a series of good US figures and surprisingly high inflation numbers, the market does not seem to want to shed its dovish interest rate expectations for 2024. On the contrary, the muted reaction rather indicates that the market assumes that the FED is listening carefully to the US government's verbal interventions and could perhaps follow suit.
If Jerome Powell wants to retain his credibility, he should not be impressed by this. But dollar bulls cannot rely on this. The massive provision of liquidity in October showed that the FED still prefers to kick the can down the road when in doubt. I have already written many times that rising debt must be accompanied by rising interest rates in order for the dollar to maintain its strength. However, I currently lack faith in a FED that prioritises its inflation target over its employment target in the 2024 election year.
For now, 104.70 remains an important point of reference for dollar investors. Shorts can be tried below this level, which would be in line with my medium-term expectation of a weaker dollar. Above the 105.00 treshold on a daily closing price basis, however, the bearish scenario is over for the time being. The picture is mixed in the individual currency pairs, as we will see below.
EURUSD -- 1.0736
The minor 1.0724 support has held so far and could be used as a reference for Euro longs. However, the general technical picture is bearish below the mid Bollinger band and the 200-day line. In this respect, I would not look at longs below the 1.0700 mark for long. With a daily close below 1.0700, the next major target is likely to be the big 1.0500 support.
GBPUSD -- 1.2549
The currency pair is testing the 200 dma at time of writing. However, the decisive support zone is likely to be at the 1.2500 level. This corresponds to the lower side of the 1.2500/1.2800 trading range, in which the currency pair has been consolidating for around three months now. In the price range between 1.2490 and 1.2590, longs and shorts should be placed with tight stops.
USDJPY -- 150.05
I bought a USD PUT JPY CALL last week at 149.15 spot ref, which is currently trading pretty much exactly atm. It was only a small attempt because the risk of a breakout above the 150 treshold was high. Nevertheless, I'm a bit surprised that there hasn't been much follow-through yet. That gives me at least some hope that the put will not expire worthless tomorrow. From a neutral perspective, however, the currency pair is moving towards the 2022 (151.95) and 2023 (151.91) annual highs. The 152 treshold would probably not survive a third test. In this respect, the rally must stop here if the bears want to have a chance.
Good luck,
Sebbo