US: stocks Sink As All Eyes Are On Consumer Price Data In The US

The Us Dollar Index Tumbles To The Sub-105.00 Area After The Cpi

As a result, the index loses further momentum and breaches 105.00.
In July, the US Headline Consumer Price Index fell below expectations.
After the data came out, the probability of a 75 bps hike dwindled.
In terms of the US Dollar Index (DXY), the greenback fell to multi-week lows on Wednesday in the sub-105.00 area when measured against the euro.

As a result of the CPI report, the US Dollar Index plummeted

After US inflation figures showed the headline CPI rose less than originally expected in July, the index depreciated rapidly as a result. In fact, consumer prices did rise by 8.5% and by 5.9% when it comes to the core reading, both of which represented a slowdown in the upward momentum from the previous month.

US: stocks Sink As All Eyes Are On Consumer Price Data In The US
The Us Dollar Index Tumbles To The Sub-105.00 Area After The CPI

As a result of the perception that inflation pressures might be reaching an all-time high or nearing that level, investors seem to have re-priced the possibility of a large rate hike (75 basis points) at the next meeting of the FOMC that will take place in September. This view was also reflected in the marked correction downwards in the US yields across the curve, which contributed to the buck’s daily decline as well.

Based on CME Group’s FedWatch Tool, which is a tool that shows the probability of a 75 basis point rate hike in September is now at almost 39% compared to about 70% prior to the release of the CPI data.

According to additional data in the US calendar, MBA Mortgage Applications increased by 0.2% during the week ending on August 5 and Wholesale Inventories increased by 1.8% during June compared to the previous month.

What to look for around USD
As market participants continue to assess the recent publication of US inflation figures, the ESI index has suddenly come under extra pressure and is trading in the 105.00 zone.

At the same time, the dollar is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, which will result in some more volatility.

It appears that the dollar seems to be propped up by the Fed’s divergence compared to most of its G10 peers (especially the ECB) as well as bouts of geopolitical effervescence and occasional resurgences of risk aversion in light of the macro scenario.

In the US, a number of key events are taking place this week, including the MBA Mortgage Applications, Inflation Rate, Wholesale Inventories (Wednesday), Initial Claims, Producer Prices (Thursday), and Flash Consumer Sentiment (Friday).

On the back boiler, what are the prominent issues: Hard/soft/softish? The economy of the United States is in the process of landing. The geopolitical effervescence between Russia and China is escalating. There is a more aggressive rate path on the horizon for the Fed this year and in 2023. There is a trade conflict between the United States and China. The future of Biden’s Build Back Better plan.

US Dollar Index relevant levels
Currently, the index is losing 1.13% at 105.09, and a breach of 104.94 (monthly low August 10) would expose 103.67 (weekly low June 27) and then 103.52 (100-day simple moving average). A breakout of 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002) as the next targets on the upside.