Market Focus: US Dollar Strength Amidst Awaited Inflation Data

The US dollar shows strength amid rising Treasury yields. Here is a technical analysis of EUR/USD, GBP/USD, and gold ahead of the CPI release.

The US dollar strengthens, gauged by the DXY index, showed signs of strength on Thursday, propelled by escalating US Treasury yields. However, the surge lacked robustness, with market volatility remaining subdued as numerous traders adopted a wait-and-see approach, anticipating fresh cues that could shed light on the Federal Reserve’s monetary policy trajectory.

Friday’s economic calendar in the US doesn’t feature any high-impact macro events, but attention is already shifting to next week’s release of the January inflation report. Analysts predict a deceleration in the annual headline CPI to 3.1% from the previous 3.4%. Similarly, analysts expect the core gauge to ease to 3.8% from December’s 3.9%.

Should progress on disinflation falter or unfold less optimistically than expected, US Treasury yields might rise as traders unwind positions betting on substantial rate cuts projected for the year. As a result, pushing back the scheduled commencement date of the Fed’s easing cycle could likely bolster the US dollar in the short term.

Conversely, a reverse scenario could unfold if inflation figures surprise the downside, mainly if the deviation is significant. This might reignite dovish interest rate expectations, increasing the likelihood of an initial FOMC cut in March and exerting downward pressure on yields. In such circumstances, we could anticipate a weaker US dollar.

Moving beyond fundamental analysis, let’s delve into the technical outlook for EUR/USD, GBP/USD, and gold (XAU/USD). Additionally, we’ll identify critical price levels that could act as support or resistance ahead of Tuesday’s US CPI release.

Market Focus: US Dollar Strength Amidst Awaited Inflation Data

EUR/USD Technical Analysis

EUR/USD experienced a slight uptick on Thursday, nearing resistance at 1.0785. A breakthrough above this level in the coming days could lead to a surge toward the 200-day SMA and trendline resistance at 1.0835. Further upward momentum may shift market focus towards the 1.0900 threshold.

On the downside, if sellers regain control and push the pair below support at 1.0720, bearish pressure might intensify, paving the way for a retracement towards 1.0650. Stabilization around these levels could occur, but a breakdown could prompt a decline towards 1.0524.

GBP/USD Technical Analysis

Following a decline last Friday and Monday, GBP/USD has staged a modest recovery, reclaiming its 200-day simple moving average and surpassing the 1.2600 level. Continued recovery could encounter resistance at 1.2675, with further upside targeting trendline resistance at 1.2750.

Conversely, if GBP/USD turns downwards and breaches the 1.2600 mark, the 200-day SMA at 1.2565 will likely provide crucial support. Bulls would need to defend this level vigorously, as failure could result in a decline towards 1.2455.

Gold Price Technical Analysis

Gold (XAU/USD) exhibited muted activity on Thursday, consolidating around the 50-day simple moving average near $2,035. This consolidation phase will persist until prices breach technical resistance at $2,065 or horizontal support at $2,005.

If resistance breaks, a rally towards $2,085 could ensue, with further upside potential targeting the all-time high near $2,150. Conversely, a breakdown in support could amplify bearish sentiment, exposing levels at $1,990 and $1,975.

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