US Dollar Forecast: CPI Data Could Drive Bond Yield and EUR/USD Outlook

Market Overview

The US Dollar experienced minor volatility following weaker-than-expected PPI data. Core PPI remained flat at 0.0%, below the forecast of 0.2%, while PPI m/m rose 0.2%, also missing the 0.4% estimate. This softened inflation pressure comes ahead of critical CPI data on January 15, which could influence Federal Reserve policy.

Analysts anticipate Core CPI to remain steady at 0.3%, while CPI y/y is expected to rise to 2.9% from 2.7%.

Market participants are closely watching these indicators alongside speeches from FOMC members, including Williams and Kashkari, as they could provide clarity on the Fed’s future monetary stance.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at $109.08, down 0.10% on the day, reflecting a slight bearish sentiment. The price recently broke below the upward channel, signaling potential weakness. Key support lies at $108.55, with a further downside target at $107.85 if selling pressure intensifies.

On the upside, immediate resistance at $110.08 must be cleared to regain bullish momentum, with the next target at $110.69.

Technical indicators offer mixed signals. The 50-day EMA at $109.11 is now acting as minor resistance, while the 200-day EMA at $107.85 provides strong long-term support. Traders should watch the $109.40 pivot point for confirmation of market direction.

US 10-year Bond Yields

The US 10-year bond yield is currently trading at 4.77%, maintaining its position within a bullish channel. Immediate resistance is observed at 4.80%, with a breakout potentially targeting the next level at 4.86%. On the downside, support is situated at 4.74%, with further support at 4.68%.

The recent stability near resistance indicates sustained confidence in the U.S. economy, bolstering the U.S. Dollar Index (DXY), which remains strong.

Rising yields enhance the dollar’s appeal, attracting foreign capital, but sustained increases could elevate borrowing costs, potentially slowing economic activity.

EUR Holds Steady Amid Mixed Economic Data

The Euro showed resilience following mixed data releases. France’s budget deficit widened to -€172.5B, higher than the previous -€157.4B. However, Italy’s Industrial Production grew by 0.3%, exceeding forecasts of 0.0%.

Looking ahead, German Wholesale Price Index (WPI) is expected to hold steady at 0.1% on January 15, while France’s Final CPI is forecasted at 0.2%. Investors will also monitor Germany’s 30-year bond auction for yield insights, with prior rates at 3.6%.

EUR/USD- Technical Analysis

The EUR/USD pair is trading at $1.03083, edging up 0.02% as it remains just below the pivot point at $1.03167. This level is crucial for determining short-term market direction. A break above it could trigger bullish momentum, targeting immediate resistance at $1.03673 and higher levels at $1.04581. Conversely, failure to surpass the pivot may push prices lower toward immediate support at $1.01865, with deeper levels at $1.01086.

Technical indicators align with the bearish bias, as the 50-day EMA at $1.03006 keeps prices under pressure, while the 200-day EMA at $1.04256 reinforces the broader downtrend. The downward trendline further supports selling opportunities below $1.03167, with the market favoring sellers unless a breakout materializes.