US Dollar Index pares recent gains above 110.00 ahead of US inflation

• US Dollar Index fades bounce off seven-week low, consolidates the biggest daily jump in a week.
• Downbeat yields, pre-data anxiety allow buyers to relinquish controls, mixed Fedspeak adds strength to the pullback moves.
• Fears emanating from China, US midterm elections keep buyers hopeful.
• Strong prints of US CPI for October needed to defend the bulls.

US Dollar Index (DXY) takes offers to reverse the previous day’s corrective bounce off the lowest levels in seven weeks as traders await the US inflation data on Thursday. In addition to the pre-Consumer Price Index (CPI) anxiety, the downbeat comments from the US Federal Reserve (Fed) authorities also weigh on the DXY near 110.30 by the press time.

That said, the New York Federal Reserve (Fed) President John Williams made some comments on inflation expectations in the text of a speech to be delivered to an audience in Zurich. “Relatively stable long-term inflation expectations are good news,” stated the policymaker.

On the same line, Richmond Fed President Thomas Barkin also mentioned that the Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take.

It should be noted that the recently published US statistics also fail to impress the DXY bulls amid fears of slower rate hikes in December.

Furthermore, mixed headlines surrounding Russia also tried to tame the risk-off mood but failed to gain major attention. Russia appears to retreat from the only Ukrainian regional capital captured, namely Kherson, whereas President Vladimir Putin is less likely to attend the upcoming G-20 summit in Bali, starting from November 15.

Alternatively, China-linked risk aversion and recent updates from the US midterm elections seem to defend the DXY bulls ahead of the key US inflation numbers for October. On Wednesday, China marked the biggest daily jump in covid numbers in six months and also announced a fresh lockdown in one more district of Guangzhou. On the other hand, a tug-of-war between Democrats and Republicans raises fears of government gridlock.

While portraying the mood, equities returned to the red after a three-day absence while the US Treasury yields also remained depressed. That said, the S&P 500 Futures struggle for clear directions by the press time.

Given the downbeat forecasts for the US CPI, expected 8.0% YoY versus 8.2% prior, as well as the recent dovish concerns over the Fed’s next move, the DXY may witness further downside in case of the softer inflation numbers.

Also read: US October CPI Preview: US Dollar to weaken on a CPI-inspired risk rally

Technical analysis

Although a convergence of the 21 and 50 DMAs restrict DXY upside near 110.30-40, bears need to conquer the 100-DMA support of 109.36 to retake control. That said, MACD and RSI are both recently in favor of a slower grind towards the south.