US Dollar Shows Signs of Stability Into PCE Inflation: USD/JPY, USD/CHF

Most would agree that the Fed are likely cut rates by 25bp this month, though their tone around future cuts remains up in the air as the backlog of economic data flows in. The bearish excitement that weak ADP payrolls figures generated for the US dollar took a pause for breath on Thursday, as job layoffs didn’t spike as bears had hoped. Instead, the US dollar rose 0.17% to break a 4-day losing streak and close back above support. ISM services PMI also show the US economy continues to grow, so it is plausible to expect the Fed to deliver a cautious cut at this stage.

And that means US dollar bears may want to tread carefully in the near term, with US economic data still pointing to a slowdown rather than a recession. Traders will be watching PCE inflation closely today; whichever side of expectations it lands on is likely to dictate the dollar’s direction into the weekend — and whether it can muster any kind of bounce.

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US Dollar Index (DXY) Technical Analysis

I’ve outlined my bearish case for the US dollar in prior analysis, based on the view that the bullish rally from the 2011 low peaked at 110.35 in 2022. The lower high in January looks like the start of an impulsive move lower, while the current three-wave rally from the June low appears to be an ABC correction — with the market now trying to define the end of wave C.

The weekly chart is on track for a second consecutive decline. It’s possible wave C has already topped, and seasonality — with the US dollar typically weakening in the second half of December — strengthens that case. But if US economic data doesn’t soften as much as bears hope, DXY remains vulnerable to a move towards 101. Traders should stay nimble and be prepared for knee-jerk reactions along the way.

Chart analysis by Matt Simpson - data source: TradingView U.S. Dollar Index Futures

US Dollar Index (DXY) Daily Chart

The daily chart shows a small bullish candle forming on Thursday, which may mark a false break beneath the 98.87 low. RSI(2) was extremely oversold on Wednesday, and price has since recovered back above the 200- and 50-day SMAs.

A bounce looks likely in the near term, with the 200-day EMA (99.32) or 99.50 serving as realistic resistance levels for bulls. A push towards 100 or higher would require PCE inflation — and subsequent data — to surprise to the upside, although that currently seems less likely given the dollar’s tendency to weaken in the second half of December.

Chart analysis by Matt Simpson - data source: TradingView U.S. Dollar Index Futures

USD/JPY Technical Analysis: US Dollar vs Japanese Yen

Like it or not, USD/JPY remains in an uptrend on the daily chart. Despite the occasional murmur of a more hawkish BOJ, officials are not signalling a rate hike yet — and that means meaningful yen strength is still absent.

The daily chart shows a spinning-top doji forming around the October high, with price closing just above the 155 handle — a level markets previously monitored for potential intervention. A small bullish divergence has also appeared on RSI(2).

On the 4-hour chart, a clearer bullish divergence is visible on RSI(14). Volume also increased as price lifted from the 4-hour doji, hinting at bullish initiation. This keeps the bias pointed towards 155.50 initially, with the 156 handle and the high-volume node (HVN) at 156.35 also within reach.

Chart analysis by Matt Simpson - data source: TradingView USD/JPY

USD/CHF Technical Analysis: US Dollar vs Swiss Franc

Another chart for US dollar bulls to keep an eye on is USD/CHF. A bullish engulfing candle formed on Thursday, closing back above the monthly pivot point, the 50-day EMA, and the 20-day EMA. Notably, range expansion kicked in after a brief dip around 0.80.

On the 4-hour chart, momentum has turned higher following its multi-day pullback, implying a near-term move towards 0.81 is achievable.

However, the high-volume node (HVN) at 0.8048 may act as resistance initially and offer a potential pullback zone for bulls looking to buy dips within Thursday’s range.

Chart analysis by Matt Simpson - data source: TradingView USD/CHF

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-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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