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Dollar: the immediate prospects

4 January 2023, 14:32

Yuri Papshev

The focus of traders today is the publication (at 15:00 GMT) of the Institute for Supply Management (ISM) report with the most important indicators reflecting the state of the US manufacturing sector (it is predicted to decrease from 49.0 to 48.5 in December), as well as protocols with December Fed meeting (at 19:00 GMT).

The monthly ISM report publishes (among other data) the PMI in the manufacturing sector of the US economy, which is an important indicator of the state of this sector and the US economy as a whole. The relative decline of the index and the result below 50 is seen as a negative factor for the US dollar, as it indicates a slowdown in business activity.

Minutes from the December meeting of the Fed may indicate further actions of the US Central Bank. At the moment, most market participants expect the Fed to raise interest rates (01 February) by 0.25% to 4.75%.

For the market, it may come as a surprise if at the Fed meeting on January 31 - February 01, the interest rate will be increased not by 0.25%, but by 0.50% or even by 0.75%. However, in order for the Fed leaders to have more arguments for this, it is necessary to wait for the publication (January 12) fresh data on consumer inflation in the US. And here, a further slowdown in inflation is expected in December (to 6.7% from 7.1%, 7.7%, 8.2%, 8.3%, 8.5% and a 40-year high of 9.1% in June).

And this week, the first major argument for Fed leaders when making a decision on rates will be the publication (on Friday at 13:30 GMT) of the monthly report of the US Department of Labor with data for December. The state of the labor market (together with data on GDP and inflation) is a key indicator for the Fed in determining the parameters of its monetary policy.

From a technical point of view, the dollar index (CFD #USDX in the MT4 trading terminal) continues to trade in the medium-term bear market zone, below the key resistance levels 105.40, 104.45. The signal for building up short positions will be a breakdown of the last month's low at 103.36. A breakdown of the support level 93.00, in turn, will mark the breaking of the global DXY bullish trend.

*) for the most important events of the week, see the Most Important Economic Events of the Week 02.01.2023 – 08.01.2023

Support levels: 103.80, 103.40, 103.00, 102.00, 101.00, 100.00, 98.55, 93.00

Resistance levels: 104.19, 104.45, 105.40, 106.45, 107.80, 109.25