Dollar Index (DXY) trade idea from September 13, 2022.
The dollar index continues to decline on Tuesday, retreating farther from its 20-year high of 110.77. Nevertheless, the fundamental backdrop is still favorable to the U.S. currency, and the weakening of the DXY is solely on technical factors.
Wells Fargo analysts expect the dollar to rise at least until the end of this year, as the Fed remains the leader in raising interest rates among major central banks. The probability of a 75-basis-point rate hike at the September FOMC meeting, for the third time in a row, is more than 90%.
The Fed leadership has repeatedly stated its willingness to continue fighting inflation despite some recession risks. Moreover, there is a growing sentiment among FOMC members that the rate needs to rise to 4.25% by the end of the year.
Today at 12:30 GMT the U.S. inflation report will be released. Consumer price index growth is projected to slow from 8.5% to 8.1%, but core inflation, which excludes energy and food costs, will rise from 5.9% to 6.1%.
If the core inflation forecast is confirmed, the Fed will continue its aggressive tightening of the monetary policy, and on this background, the treasuries yield will soar above 3.5%, which will once again mark the dollar's lead among other forex indices.
Buy order for DXY:
Buy-stop 108.50 take-profit 109.50 stop-loss 108.10