As milestone consumer inflation data from America is round the corner (Wednesday, July 12), any clues which could hint on lower price pressure may cause a breakthrough below the rock bottom of 100 for the U.S. Dollar index (DXY) against the basket of six other rival currencies. The Greenback was staying clearly weaker already at the beginning of the week, approaching that "ground" level to the minimum distance for the last two months. Consensus expectations on the headline consumer price index (CPI) was at 3.1% annually vs 4.0% on June 13. A significant drop could happen thanks to some points of expensive fuel in 2022 being thrown away, so that month-by-month CPI statistics also matter, as well as the so-called "core" inflation, without volatile energy and food components.
If the price data would be still favourable for the Federal Reserve (Fed) to stop its rate hike cycle after the end of July, then the difference between more aggressive European Central Bank (ECB) and the Bank of England (BoE) on one side, and a rather moderate Fed on the other side may attract more inflows to the European currencies. The single currency and the Pound sterling altogether have a 67.5% weight in the U.S. Dollar Index. Therefore, supposedly ascending moves in EUR/USD and/or GBP/USD may push USDX to go down, and not without reason.
In the eventuality that the above scenario would be rolled out, selling on any breakthrough below 100 may be an adequate short-term positioning at least, with a nearest target area located around 96.5, in the vicinity of the repeated levels of January-February 2022. Stop losses above 100.75 are needed, of course, as the fundamental situation related to possible central banks' policy decisions and incoming economic data are always based on judgements, which do not remain unchanged.
