Talking Points in US Dollars:

The past week has been an important one for the US dollar and this week the spotlight is once again on inflation.

Two weeks ago, during the FOMC’s July rate decision, President Powell continued to ignore inflation concerns. He continued to mention employment as the sore point and said it was the main component that needed to see “significant further progress” before the bank proceeded to standardize its policy. This announcement helped push stocks to a new all-time high with a weaker US dollar finally attracting some element of support on the last trading day in July.

Last week, these employment concerns continued until Wednesday, when a very negative ADP report helped bring dollar weakness back as the greenback re-entered this support zone ranging from 91.82 to 91.93.

But that’s around the time the pivot happened: FOMC Vice President Richard Clarida was speaking in an interview on Wednesday morning, and he didn’t sound that optimistic about inflation. He said the Fed may be able to start cutting its bond purchases later this year and perhaps raise rates in early 2023. This contrasted sharply with Powell’s comments of a week longer. early on, and this helped bring an explosive move in USD strength into the mix.

The USD built a bullish engulfing candlestick on Wednesday, helped by comments from Clarida, which kept the US dollar close to near-term resistance for the nonfarm wage release on Friday.

To learn more about bullish engulfing candlesticks, or Non-farm payroll, to verify DailyFX Education

Daily Price Table in US Dollars

Graphic prepared by James stanley; USD, DXY on Tradingview

Friday’s NFP report shows progress in the labor market

Friday’s NFP report was strong in every way, which helped advance this theme of the strength of the US dollar, with the greenback now tracing all losses caused by the FOMC and then some. This emphasizes the impression of inflation in the United States, on the economic calendar for 8:30 a.m. on Wednesday morning.

Inflation is expected to calm down from last month’s impression while remaining well above the 2% target. Core inflation is expected to stand at 4.3% versus 4.5% previously; and headline inflation is expected to hit a whopping 5.3% from 5.4% last month.

Ahead of the release, the strength of the US dollar continues to hold, with the greenback testing another resistance area drawn around 92.89. Above that we have the four-month high at 93.19, after which the 2021 high kicks in around 93.43.

On the support side, 92.46 is a remarkable Fibonacci zone, and below is another support zone plotted from 92.19 to 92.26.

To learn more about Fibonacci, to verify DailyFX Education

Four hour US dollar price chart

Graphic prepared by James stanley; USD, DXY on Tradingview

— Written by James stanley, Senior strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX