US Dollar Index may be rocked by US CPI release

• US CPI release today at 1:30 PM UTC may spark volatility
   
• Headline CPI forecast: 2.9% YoY, up from 2.7%, signals rising inflation
   
• Core CPI expected at 3.3% YoY, steady but highlighting persistent inflation
   
• Key technical levels: support at 108.644, resistance at 110.304
   

The US dollar Index is on the brink of significant price movements as we approach the release of the highly anticipated US Consumer Price Index (CPI) data for December 2024.

Last Friday, the index surged 412 points following unexpectedly strong jobs data, only to face a setback of 540 points after forming a bearish doji candlestick on Monday, January 13, 2025.

This volatility underscores the potential for major shifts in market sentiment.

Today's CPI data is set to reveal crucial indicators:
 

• 2.9% year-on-year headline CPI (January 2025 vs. January 2024): If this forecast proves accurate, it would notably exceed December's 2.7% year-on-year figure, indicating rising inflationary pressures
   
• 3.3% year-on-year core CPI (excluding food and energy prices, which typically fluctuate more): Should this prediction hold, it would match December’s 3.3% year-on-year mark, reinforcing concerns about persistent inflation
   
• 0.3% month-on-month CPI (January 2025 vs. December 2024): A matching estimate here would affirm December’s 0.3% month-on-month figure, highlighting consistent price levels
   
• 0.2% month-on-month core CPI (excluding food and energy): If accurate, this figure would be lower than December's 0.3%, potentially easing some inflationary worries

Over the past year, US CPI reports have triggered price movements in USDInd of up to 0.5% upwards and declines of 0.8% within just 6 hours of release, showcasing the market's sensitivity to inflation data.

Technically, the US dollar index is retracing from Monday's peak of 110.226, the highest since November 2022.

The USDInd bears, (those expecting a further decline), should take note of critical support levels should the downturn continue.

• 108.644: This aligns with the 61.8% golden Fibonacci ratio, coinciding with the 21-day simple moving average and the upward-moving trend line from September 30, 2024. (This convergence of technical indicators suggests that traders should prepare for potential market reactions as the CPI data unfolds.)
   
• 107.200: The 50-day simple moving average

The US dollar index bulls on the other hand (those looking to see the index rally) may pay attention to the following price levels for potential resistance

• 110.304: The most recent high reached at the start of this trading week
   
• 110.841: A key price level last reached on November 10th, 2022
   
• 112.000: A significant round number price level