Analysis: USD, Nasdaq 100 and Treasury Yields

• US CPI is expected to ease slightly – focus is on the monthly measure
• USD eases ahead of the CPI data
• Nasdaq continues the risk rally with the all-time high within touching distance
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

US CPI is Expected to Ease Slightly – Focus on the Monthly Measure

US CPI has proven stubborn in the first three months of the year, rising 0.4% in the last two months for both headline and core measures of inflation. A lack of progress on the inflation front has been the main source of concern for the Fed and according to Jerome Powell, has lowered confidence within the group in relation to the timing of interest rate cuts, which looked increasingly likely at the beginning of 2024.

The consensus estimates point towards a welcomed move lower this month for both headline and core inflation which may prove a relief and continue to see the dollar weaken.

Estimates from Large US Banks

Source: X via Nick Timiraos, Wall Street Journal

Monthly core inflation has printed at 0.4% for the past three months and headline inflation providing the same increase for the last two months. The core measure is expected to drop to 0.3% while headline inflation is expected to remain at 0.4%. Markets have had a greater focus on monthly, 3-month, and 6-month inflation averages which could see a muted reaction if the data prints inline with expectations.

Learn how to position ahead of a major data print with an easy-to-implement strategy:

US Dollar Softens Ahead of Crucial Inflation Print

The US dollar, measured via the US dollar basket (DXY), has eased in the lead up to the inflation data and now approaches the 61.8% Fibonacci retracement of the 2023 decline (104.77) and the 104.70 – the May 2023 spike high.

Since the FOMC meeting at the start of the month, the greenback has continued the broader decline since reaching its peak in April. A more dovish Fed, lower interest rate expectations, and softer labour market conditions have outweighed more recent inflation concerns, guiding USD lower.

US Dollar Basket Daily Chart

Source: TradingView, prepared by Richard Snow

US yields have also fallen, particularly after the more dovish Fed meeting on the 1st of May, with a further bearish catalyst emerging via the weaker NFP data that followed on the 3rd of May.

US 2-year yields are more sensitive to interest rate expectations and have backed away from the 5% marker, trading around the 4.8% level.

US 2-Year Treasury Yields

Source: TradingView, prepared by Richard Snow

US Tech Stocks Make Another Attempt to Test the All-Time High

US stocks generally took advantage of a weaker dollar to make another push towards the all-time high which is now within reach. The direction of travel for riskier assets like stocks continues to be up and to the right as risk sentiment remains in a much better place since the Iran-Israel tensions have subsided and rate cuts appear more likely for major central banks apart from the Fed.

Nasdaq (NDX) Daily Chart

Source: TradingView, prepared by Richard Snow

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