US Inflation Up Next

All eyes are on the US Dollar today as traders brace for the latest set of US inflation readings, due this afternoon. The Dollar has been in freefall in recent weeks, reflecting a shift in the market’s Fed outlook. Near-term easing expectations have increased alongside a decline in recent US data and growing fears over the economic impact of Trump’s tariff war. Friday’s weaker-than-forecast labour market data was seen as underscoring this dovish shift with traders now increasingly expecting a cut to come as early as May or June.

Bearish Scenario

Today, the forecast is for annualised headline CPI to cool to 2.9% last month, from 3% prior. While still well above the Fed’s 2% target, if confirmed, the decline should add to current bearish sentiment, seeing USD continue lower near-term. If we see a downside surprise today, this will amplify the selling in the greenback, creating important cross-market ripple effects, as traders move to price in a cut as early as May. Given the more hawkish expectations for counterparts such as the ECB and BOJ, FX moves could light up again today on a dovish print.

Bullish Scenario

Given the backdrop, it would likely take a meaningful upside surprise today to stem the selling in USD and create any pushback against these growing near-term rate-cut expectations. If seen however, USD is vulnerable to a short-squeeze given the selling undertaken this week alone. However, any rally will likely prove short-lived as traders return to focusing on tariffs and US recession risks.

Technical Views

DXY

The index continues to press into new lows with price currently sitting on support at the 103.37 level. With momentum studies bearish, risks remain skewed to the downside and a break below this level will open the way for a test of deeper support at the 101.91 level next.