Dollar drops sharply on softer-than-expected US May inflation numbers
The US dollar fell across the board in immediate reaction to softer-than-expected US May inflation numbers, reviving hopes for a Fed rate cut in September.
US month-on-month consumer prices were flat in May after a 0.3% increase in April, and annualized, they rose by 3.3% last month, compared to a 3.4% rise in the previous month and the forecast.
Core CPI, which excludes the most volatile components, decreased to 0.2% month-on-month in May from 0.3% in April and to 3.4% year-on-year from 3.6% in the previous month.
The softer-than-expected May figures provided relief to Fed policymakers, who signaled a further delay in the timing of the first rate cut, boosting bets that the central bank’s first action will occur in September.
The FOMC ends its two-day policy meeting later today, with widespread expectations to keep rates unchanged. However, markets will focus more on the central bank’s projections, which will provide more details about the Fed’s steps in the coming months.
The soft CPI numbers soured the dollar’s sentiment and prompted a sharp selloff, pushing the dollar index down by 0.6% in the first minutes after the data release.
This fresh drop significantly weakened the technical picture, with hourly and 4-hour studies turning firmly bearish and the daily chart structure significantly weakening.
The sharp post-data fall already retraced over 50% of the 103.61/105.42 upleg, with rising negative momentum and the stochastic indicator reversing from overbought territory, generating a strong bearish signal on the daily chart.
Bears are pressuring key supports at the 104.30 zone (daily cloud base / converged 100/200DMA / 61.8% Fibonacci retracement of the 103.61/105.42 rally). A clear break here would validate the bearish signal and open the way for further declines, targeting 103.90 and 103.61.
However, bears may face increased headwinds at this level, potentially sparking partial profit-taking. Any upticks are expected to be limited, seen as consolidation and positioning for the continuation of the bear-leg from the 105.42 peak on June 11.
Barriers at the 104.70/80 zone should ideally cap any upticks and guard the upper pivots at 105.00/18 (broken 50% Fibonacci retracement / daily cloud top).
Res: 104.57; 104.75; 105.00; 105.18
Sup: 104.30; 103.90; 103.61; 103.22
