Forex Trading Alert: The U.S. Dollar Tests 55-Day EMA Resistance, Investors Wait for U.S. Inflation Data

The dollar index rallied slightly at the start of Asian trading on Monday (February 13). It is currently trading around 103.62, just near the resistance of the 55-day moving average. The dollar index rose 0.34% on Friday, and investors are increasingly worried that the US inflation data released this week may be higher than market expectations. Earlier data showed that consumers expect prices to continue to rise next year.

The yen fluctuated widely on Friday. It was reported that Kazuo Ueda will become the next governor of the Bank of Japan. The dollar fell more than 150 points against the yen to around 129.80 at one point, but after he said the central bank's monetary policy was appropriate, the yen gave up some of its gains. The dollar closed at around 131.38 against the yen on Friday. The dollar rose slightly against the yen at the beginning of Asian trading on Monday and is currently trading around 131.55.

As the data continued to show positive momentum in the U.S. economy, the dollar index rose 0.15% last week, its second consecutive weekly gain, the first since October.

The University of Michigan survey released on Friday showed that consumer expectations for one-year inflation rose to 4.2 per cent in February, up from January's final reading. The headline consumer confidence index was 66.4, up from 64.9 last month.

US Federal Reserve Chairperson Jerome Powell uses the inflation expectations in the above survey as one of the indicators tracked by the Federal Reserve.

The Labor Department's annual revision of the Consumer Price Index (CPI) data released on Friday showed that consumer prices rose in December, rather than falling as previously estimated, and the previous two months' data were also revised upwards.

Mazen Issa, senior FX strategist at TD Securities, said the February 14 CPI report had "come into focus because we are seeing signs that... inflation is stronger than initially thought last year".

"It does challenge the idea that the Fed could cut rates," said Mr. Mazen Issa. "Stronger ISM data and continued labour market tightness are solidifying... the Fed's stance to raise rates higher and for longer... and may eventually materialise. That puts the dollar back in a good position."

According to a Reuters poll, data released on Tuesday (February 14) may show that the U.S. CPI rose 0.4% month-on-month in January, and the core CPI also rose 0.4%. But the U.S. CPI is expected to rise 6.2% year-on-year in January and 6.5% in December. Core CPI is expected to rise 5.5% year-on-year and 5.7% in December.

The dollar index rose 0.34% on Friday to close at 103.56.

Last Friday's intraday Nikkei News reported that the Japanese government may nominate Kazuo Ueda, a former member of the Bank of Japan's policy committee, as the next governor of the central bank, driving the yen sharply, and the market expects that the ultra-loose monetary policy may end early.

But in an interview broadcast live on Nippon TV, Mr. Ueda said the central bank's current easy monetary policy was appropriate and should continue, causing the yen to give up some of its earlier gains.

Prime Minister Fumio Kishida said the government planned to present nominations for the governor of the Bank of Japan to parliament on Tuesday, but did not answer questions about whether Mr. Ueda would be nominated.

"It's really uncertain whether there will be a major hawkish shift at the BoJ," said Juan Perez, head of trading at MonexUSA.

The dollar bottomed out against the yen last Friday, falling 1.28% to 129.80 during the session, closing at 131.38, down about 0.11%.

The euro and sterling both fell more than 1% against the yen at one point, and the euro fell about 0.7% against the yen at 140.34 at the end of the session; the pound fell 0.5% against the yen at 158.60.

In December, the Bank of Japan shocked markets by raising the 10-year bond yield ceiling from 0.25 per cent to 0.5 per cent.

Since then, speculation has intensified that the Bank of Japan may adjust or remove its yield curve control policy, but the central bank did not make any adjustments at its last meeting.

Sterling fell 0.5 per cent to $1.2056 against the dollar on Friday as concerns remained over the outlook for the UK economy despite data showing it had managed to avoid a technical recession and showed zero growth in the final three months of 2022.

The euro fell 0.56% against the dollar last Friday to $1.0678, a weekly decline of 1.06%, marking the second consecutive weekly decline.

The dollar fell 0.83% against the Canadian dollar on Friday to close at 1.3342, as Canada added 150,000 jobs in January, 10 times market expectations, and the market reassessed the next move of the Bank of Canada. It is expected that the Bank of Canada will raise interest rates again in April.