Dollar remains on defensive ahead of US inflation data

The dollar index continues to trend lower for the second consecutive week and hit new lowest in almost three weeks on Wednesday.

The dollar reversed direction and entered downtrend since the US-backed intervention to support weakening yen and bond buybacks in late July (drop from 101.48 to 99.45, where bears found temporary support).

Bears regained control after a limited correction was capped by Fibo 38.2% of 101.48 to 99.45 descend, reinforced by 100DMA and bull-trap pattern formed on daily chart that gave fresh impetus to broader bears and resulted in almost full retracement of 99.45/99.82 recovery leg.

Daily studies turned into a full bearish setup (multiple MAs bear-crosses / repeated close below 200DMA / 14-d momentum returning to negative territory after a brief probe above the centreline) favoring scenario of attack at 99.45 (Aug higher base), break of which could spark further slide.

Markets await release of US Aug inflation report on Friday, which would make significant contribution to Fed’s decision on next week’s policy meeting.

The dollar would benefit from higher than expected US CPI numbers (likely lead to rate hike), although more work at the upside will be required to neutralize bears.

Broken 200DMA (98.96) marks initial resistance, followed by 10DMA (99.14), guarding upper breakpoint at 99.60.

On the other hand, firm break of 99.45 pivot would signal bearish continuation (completion of bearish failure swing on daily chart) and expose targets at 97.82 (weekly cloud base) and 97.40 zone (Apr-May higher base).

Res: 98.96; 99.14; 99.45; 100.00
Sup: 98.44; 97.82; 97.40; 96.81