US Dollar Continues to Get Punished as Traders Feel No Need for Safety as Stocks Soar

US DOLLAR, PPI, CPI, SENTIMENT – ASIA PACIFIC MARKET OPEN:

• US Dollar is set for worst week since early January

• Wholesale inflation softened, hinting at a Fed pause

• DXY is sitting at a critical support zone, will it hold?

Asia-Pacific Market Briefing – US Dollar Bracing for More Pain?

The haven-linked US Dollar was crushed over the past 24 hours, extending the most recent slide since early March. Meanwhile, the sentiment-linked Australian and New Zealand Dollars outperformed their major counterparts. The DXY Dollar index is down over 1% this week so far. If losses are sustained, this would be the worst 5-day period since early January. Gold soared, approaching record highs.

The Greenback’s decline this week can be traced back to the latest US inflation report. The headline CPI gauge unexpectedly fell to 5.0% y/y compared to the 5.1% estimate. But, the core gauge rose to 5.6% from 5.5% prior. Meanwhile, over the past 24 hours, US wholesale inflation figures broadly missed expectations.

Dampening inflation continues to underscore what may be the last rate hike from the Federal Reserve in this tightening cycle come May. Meanwhile, a resilient labor market likely has traders clinging to a scenario where the economy can withstand the shock of the most aggressive tightening in decades. Markets also continue to hold onto bets that the central bank will cut rates later this year.

With that in mind, what lies ahead for the US Dollar as the week wraps up? Friday’s Asia-Pacific trading session is lacking notable economic event risk. That may place the focus on sentiment for traders. As such, if regional indices extend Wall Street’s rosy trading session (where the S&P 500, Nasdaq 100, and Dow Jones soared), that may continue dampening demand for the haven-linked US Dollar.

US Dollar Technical Analysis

From a technical standpoint, the US Dollar is at a critical juncture if we are talking about the DXY’s peak back in September. Prices are sitting squarely on the 101 – 101.297 support zone. This area kept prices from extending losses in February, reinforcing the range. A confirmatory breakout here opens the door to the US Dollar to continue its broader downward journey.

DXY Daily Chart

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Written by Daniel Dubrovsky, Senior Strategist for DailyFX