US Dollar Forecast: CPI Holds Steady While Dollar Consolidates – GBP/USD and EUR/USD Outlook

Market Overview

The US Dollar faced renewed pressure after mixed economic data. Core CPI m/m rose 0.2%, falling short of the 0.3% forecast, while CPI y/y remained steady at 2.9%. The Empire State Manufacturing Index plunged to -12.6, significantly missing expectations of 2.7, indicating weaker manufacturing activity.

Market participants are now looking ahead to Thursday’s Core Retail Sales, expected to rise 0.5%, and Unemployment Claims, which may edge higher to 210K.

The USD remains under scrutiny, with traders awaiting further economic clarity and signals from Federal Reserve speakers about the direction of monetary policy.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at 109.05, down 0.02% for the day, as it consolidates near the pivot point at 108.96. Immediate resistance is positioned at 110.08, with an additional hurdle at 110.69. On the downside, support is seen at 108.41, with deeper levels at 107.85.

The 50-day EMA at 109.11 is acting as a near-term resistance, while the 200-day EMA at 107.91 reinforces long-term support, highlighting the index’s broader bullish structure. A sustained move above the pivot point could bolster bullish momentum, targeting higher resistance zones. Conversely, a break below 108.96 might signal bearish pressure, opening the path to support levels.

For traders, the 108.96 pivot serves as a critical decision point, dictating near-term sentiment and potential price direction.

Sterling Softens Amid Lower CPI and Sluggish GDP Growth

The British pound (GBP) remains under pressure after UK inflation slowed to 2.5% in December, below the forecast of 2.6%. Markets now focus on the GDP m/m data set to release tomorrow, which is expected to recover slightly at 0.2% from a prior decline of -0.1%.

This weaker-than-expected inflation figure has dampened prospects for aggressive rate hikes by the Bank of England, keeping the pound’s momentum subdued.

GBP/USD Technical Analysis

The GBP/USD pair is trading at 1.22137, down 0.15%, reflecting continued bearish pressure as it remains below the pivot point of 1.23056. Immediate resistance lies at 1.24514, with stronger barriers at 1.25827, while support levels are positioned at 1.20987 and deeper at 1.19575.

The technical setup highlights the 50-day EMA at 1.22907, reinforcing short-term resistance and signaling sustained selling pressure. Meanwhile, the 200-day EMA at 1.25076 underscores the broader downtrend. A break above the pivot at 1.23056 is necessary to shift momentum toward a bullish trajectory.

Euro Steady as German Inflation Exceeds Forecasts, ECB Minutes Awaited

The euro (EUR) holds steady following mixed economic data. German Wholesale Price Index (WPI) met expectations at 0.1%, while French CPI remained unchanged at 0.2%. However, industrial production fell short, rising only 0.2% versus the 0.3% forecast.

German 30-year bond yields showed a slight rise, signaling cautious optimism. Markets now focus on the German CPI, which exceeded expectations at 0.5%, and the upcoming ECB Monetary Policy Meeting Accounts for policy insights.

EUR/USD Technical Forecast

The EUR/USD is trading at 1.02965, up 0.09%, signaling cautious optimism as it hovers above the key pivot point at 1.02816. This level is critical for sustaining the bullish momentum, with immediate resistance at 1.03565 and a stronger barrier at 1.04370. On the downside, support is seen at 1.01847, followed by 1.01086.

Technical indicators present a mixed picture. The 50-day EMA at 1.02999 aligns with the current price action, providing near-term support, while the 200-day EMA at 1.04182 underscores long-term bearish pressure.

A decisive move above 1.03565 could reinforce the upward trend, targeting higher levels. Conversely, failure to sustain above 1.02816 may prompt selling pressure, testing immediate support zones.