With a little over 24 hours until the FOMC Minutes are released to the public, the USD Index is holding its own in positive territory. Bearish action the EUR/USD and GBP/USD have been the highlights as Brexit fears have trumped slumping U.S. PPI data. In addition, weakness in WTI crude has boosted the USD/CAD , capping a positive pre-FOMC Minutes session for the Greenback.

However, the stronger USD runs a bit counterintuitive to this morning’s lagging Producer Price Index (PPI) figures. Here is a quick look at the data:

Event                                         Actual        Projected        Previous

PPI (MoM, Sept)                        -0.3%              0.1%                0.1%

PPI (YoY, Sept)                            1.4%              1.8%                1.8% 

Core PPI (MoM, Sept)               -0.3%             0.2%                0.3%

Core PPI (YoY, Sept)                   2.0%              2.3%               2.3%

This collection of sub-par PPI numbers backs up the FED’s concerns over lagging inflation and furthers the case for more rate cuts. In fact, the CME FEDWatch Index is showing a 7% one-day gain in the probability of a ¼ point cut occurring at the 30 October meeting. Despite the strengthening case for an extended period of dovish FED policy, the USD Index is driving into bullish territory.

Lagging PPI Doesn’t Hamper The USD Index

Today’s session has been surprisingly strong for December USD Index futures. Rates are on the march north and pressing the big-round-number of 99.000.

December USD Index Futures (DX), Daily Chart
December USD Index Futures (DX), Daily Chart

Here are the levels to watch going into Wednesday’s FOMC Minutes:

  • Resistance(1): Swing High, 99.305
  • Support(1): Bollinger MP, 98.340
  • Support(2): 62% Retracement, 98.225

Overview: No doubt about it, today’s U.S. PPI figures are a strong signal that lagging inflation continues to be a major issue facing the U.S. economy. This has been a primary concern of Jerome Powell and one that may lead to multiple FED rate cuts ahead of January 1st, 2020.

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