Daily Market Recap – DXY Dollar retreats on lower rate hike expectations

The odds of a Fed rate hike have fallen slightly since the beginning of the month. Despite the Fed's tapering announcement and last week's strong U.S. jobs report, market participants are revising down their outlook for a Fed rate hike in 2022.

The odds of two or fewer rate hikes by the end of next year have increased while the scenario of three or more rate hikes has decreased as we can see in the chart below.

(Source: CME Group)

The scenario of two or more rate hikes remains in the majority (~68% vs. 73% on November 2), but this decrease obviously puts pressure on the dollar in the short term, which naturally benefits most other major currencies since last week.

The next key date for the dollar will be the release of consumer inflation figures on Wednesday. CPI is expected to rise by 0.6% month-on-month in October and core CPI by 0.4%, higher than in September. A stronger-than-expected acceleration in inflation would bolster investors' rate-hike outlook, supporting the dollar and vice versa. No other key catalysts for the dollar are expected this week.

On the technical analysis front, the DXY outlook remains technically bullish above the neckline of the double bottom/ascending triangle reversal pattern at 93.50 points.

A break above resistance at around 95 points and a breakout from the weekly time unit's Bollinger Bands at the top would be strong bullish signals that would reinforce the underlying bullish outlook.

 (Chart Source: Tradingview 09.11.2021)

Conversely, a pullback below the neckline would start to be worrisome for the bullish outlook. This would certainly be the case in the event of a series of much weaker than expected economic data, such as inflation data, as it would undermine the scenario of a rapid normalization of Fed policy.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.