The USD is currently stable against major currencies. Last month’s NFP report made traders rethink the possibility of a third rate cut by the end of the year. Wage growth was not as strong as anticipated, which limited further gains for the USD. Now, all eyes are on the upcoming US CPI report. It’s unlikely that the CPI will lead to a rate cut at the July Fed meeting, although September might be a possibility if the data supports it. A weak CPI could increase chances for a third rate cut later this year, which would negatively affect the USD.

Impact on the USD

If the CPI shows strong results, it may not stop the second rate cut but could reduce expectations for a third, possibly strengthening the USD. The Australian dollar (AUD) has seen some movement due to the RBA keeping the Cash Rate steady while waiting for the new CPI data. On the daily chart, the price is at the top of a broadening wedge formation, suggesting that a significant price movement may occur. Sellers may look to enter at the upper trendline, anticipating a drop to the 0.6350 support zone. Buyers will watch for a breakout that could push prices toward 0.69. On the 1-hour chart, the price is struggling against the upper trendline, indicating selling pressure. Buyers are relying on a minor upward trendline, aiming for a breakout above the major trendline, while sellers are targeting a decline towards the 0.6350 support. This summary captures the current state of market expectations. The US dollar is steady, not moving much against major currencies. The recent non-farm payrolls report showed softer numbers, particularly in wages, causing some to doubt the likelihood of a third rate cut this year. As a result, the dollar has limited strong gains but also avoided significant losses, remaining in a sort of holding pattern.

Focus on Inflation Data

With the NFP report behind us, the focus now shifts to upcoming consumer price index (CPI) figures. Inflation will be key for any decision from the Federal Reserve. If the CPI comes in lower than expected, it’s unlikely the Fed will act as early as July. However, September might be possible if inflation slows down and no surprising strong data emerges. If price growth weakens, the case for rate cuts by December strengthens, causing the dollar to weaken. If CPI figures are strong and show persistent inflation, it might not eliminate the chances of a second rate cut, but it could lessen the argument for a third. In that case, the dollar might strengthen, especially if investors doubt the Fed can justify more than one cut. Turning to the Australian dollar, policymakers have left the main interest rate unchanged and are waiting for local CPI data to guide their decisions. The technical setup reflects this uncertainty. On the daily chart, the price is at the top of a broadening wedge, often signaling a strong move when one side loses momentum. This is when traders usually act. We’re watching closely. Bears notice the repeated failure to break the upper trendline, with many setting short positions just below resistance, hoping for a drop back to 0.6350, a level of strong support. This approach is based on patterns and disciplined risk management. Meanwhile, bulls are not giving up. They are eyeing the same upper edge of the wedge, looking for a solid breakout above it. If the price can break that line convincingly, it could target the 0.6900 mark, an important psychological and historical level. Looking at the hourly chart reveals a similar pattern. There’s clear rejection from the upper edge, leading to increased selling. However, the short-term upward trendline still holds, with buyers positioned just above it, likely using tight stops below, aiming for a sharp upward move if conditions shift in their favor. This situation is precarious. Resistance is holding for now, but the foundation remains strong. The market’s direction will be determined when price action takes a decisive turn. Until then, it’s all about preparation rather than prediction. Create your live VT Markets account and start trading now.

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