Weak U.S. Data Continues, Decision Time For DXY

 | Jan 14, 2020 12:37PM ET

According to the Federal Reserve Bank of Chicago, the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) sets U.S. monetary policy. The FOMC has a dual mandate: maintain price stability and Maximum Sustainable Employment. Most recently, U.S. jobs data was released for the month of December. Data showed that the unemployment rate for December was 3.5%, which is the lowest rate since the early 1970s. Clearly, the Fed is doing a good job on maximizing sustainable employment.

On Tuesday, the U.S. released inflation data for December, which is a measure of price stability. The Consumer Price Index (CPI) for December (MoM) was 0.2% vs. and expectation of 0.3%. The Core CPI for December (MoM), which excludes the volatile prices of food and energy, was 0.1% vs. an expectation of 0.2%. Although increasing, a Core CPI of only 0.1% does little to help the Fed in terms of maintaining price stability.

Although the U.S. Dollar Index (DXY) was little changed on the data release, if inflation does pick up then the value of the U.S. dollar theoretically should move higher over time (although there are many factors at play in determining market value).

Technically, the DXY is at a confluence of resistance. On a daily timeframe, DXY had been in an upward sloping channel since May of last year. In early December, price broke lower to the 50% retracement of the June 13 low to the October 1 high and bounced to retest the bottom upward sloping trendline of the channel near 97.50.