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US Dollar Rallies to Resistance – Inflation Set to Drive

US Dollar Talking Points:

Last week was a big one for the US Dollar and this week shifts the spotlight back onto inflation.

It was two weeks ago at the July FOMC rate decision that Chair Powell continued to shrug off inflation worries. He kept mentioning employment as the sore spot, and said that this was the main component that needed to see ‘significant further progress’ before the bank would move to normalize policy. This announcement helped to push equities up to another fresh all-time-high along with a weaker US Dollar that finally caught some element of support on the final trading day of July.

Last week saw those worries about employment continue all the way into Wednesday, at which point a very negative ADP report helped to bring USD-weakness back, with the Greenback once again engaging with that support zone running from 91.82-91.93.

But that’s about the time that the pivot happened: FOMC Vice Chair Richard Clarida was speaking in an interview on Wednesday morning, and he didn’t sound so sanguine about inflation. He said that the Fed may be in a position to begin tapering bond purchases later this year, and possibly able to raise rates in early 2023. This was in stark contrast to the Powell comments from just a week earlier, and this helped to bring an explosive move of USD-strength into the mix.

The USD built a bullish engulfing candlestick on Wednesday, helped along by Clarida’s comments, and this kept the US Dollar close to near-term resistance for the Friday release of Non-farm Payrolls.

To learn more about bullish engulfing candlesticks, or Non-farm Payrolls, check out DailyFX Education

US Dollar Daily Price Chart

US Dollar Daily Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

Friday NFP Report Shows Progress in Labor Market

The Friday NFP report was strong all-the-way-around, and this helped to further that theme of USD-strength with the Greenback now retracing all of the FOMC-fired losses and then some. This puts the focus on the inflation print out of the US, on the economic calendar for 8:30 AM on Wednesday morning.

The expectation is for inflation to have calmed from last month’s print while still remaining well above the 2% target. Core inflation is expected to come in at 4.3% versus a prior 4.5%; and headline inflation is expected to print at a whopping 5.3% versus last month’s 5.4%.

Ahead of the release, US Dollar Strength is continuing to hold, with the Greenback testing through yet another zone of resistance plotted around 92.89. Above that we have the four-month-high at 93.19, after which the 2021 swing-high comes into play around 93.43.

On the support side of the matter, 92.46 is a Fibonacci zone of note, and below that is another support area plotted from 92.19-92.26.

To learn more about Fibonacci, check out DailyFX Education

US Dollar Four-Hour Price Chart

US Dollar Four Hour Price Chart

Chart prepared by James Stanley; USD, DXY on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX