Dollar Index Edges Higher Ahead of Key Inflation Data

The dollar index rose slightly on Friday morning, remaining within a volatile range for the sixth consecutive day. The long tails on the daily candles over the past two days and consistent closes above the upward-turning 10-day moving average (10DMA) suggest a bullish near-term bias.

The index is testing the 200-day moving average (200DMA) at 104.13 once again, which has capped recent movements. It is also putting pressure on the next significant barrier at 104.26, the 38.2% Fibonacci retracement level of the 105.78 to 103.31 decline. A sustained break above this level would signal fresh bullish momentum and pave the way for further recovery.

However, the risk of another stall remains, as the 14-day momentum indicator is still negative, and the stochastic oscillator is reversing from the overbought zone. Clear direction signals will be seen with a break of either key level—103.97 (10DMA) on the downside or 104.26 (38.2% Fibonacci) on the upside.

Fundamentals are likely to influence the dollar’s movement today, following the positive US Q2 GDP data on Thursday. The market’s focus is now on the release of the US Personal Consumption Expenditures (PCE) data, the Federal Reserve’s preferred inflation measure, to gain insights into the timing of potential Fed rate cuts.

While markets expect the Fed to hold rates steady at next week’s policy meeting, there is broad anticipation for three rate cuts by the end of the year, starting as early as September.