The U.S. dollar rallied from 96.25 to 96.54 after two key inflation data releases. The U.S. Producer Price Index (PPI) monthly reading climbed 0.2%, higher than the forecast of 0.1%, but lower than the prior reading of 0.4%. Core PPI gained 0.3%, verse a forecast of 0.1% and prior reading of 0.3%. With the Federal Reserve debating a September or December rate hike, any climb with inflation could tilt the scale to moving sooner. The next key inflation report will come out Wednesday. The dollar gave back most of its earlier gains after the Preliminary University of Michigan Consumer Sentiment reading fell short of its forecast with a 92.9 print.
Price action on the U.S. dollar index shows that the double-top pattern that formed at the end of last week, produced a bearish reversal that is tentatively breaking below both the 50- and 100- day SMA(s). If downward momentum continues, we could price ultimately find major support from the 94.53 level, which is where the 200-day SMA is currently trading. Further weakness may target the 90 handle, it is around that area that a bullish Gartley pattern may form.
The longer-term bullish trend is on hold, but eventually it may resume. Initial resistance will come from the 98.42 zone.
The trade: Sell Dollar Index at 96.55 with a stop loss at 97.05 and take profit at 95.55. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading