The USD Index has pushed to new weekly highs around 90.40 after the Core PCE Price Index (monthly) rose from 0.4% to 0.7%, beating the market expectation of 0.6%. This translates to a rise of 3.1% annually in April, topping estimates as well.
This data set is the key inflation metric used by the Fed in determining monetary policy. The rise in the numbers and the bullish effect on the USD Index is that it once more reinforces the previous rise in consumer inflation, spurring greater expectations that the Fed would have to start considering tapering of the QE program.
The reading is the highest in 27 years. The USD Index also received a boost from the narrowing of the Goods Trade Deficit from $92 billion to $85.2 billion.
The daily candle has violated the 90.228 resistance and is on its way to the 90.503 resistance. Above this level, additional barriers reside at 90.965 and 91.261. The latter is where the measured move from the break of the falling wedge could terminate.
On the other hand, a lack of follow-through buying to take the DXY above 90.503 could lead to a pullback, which retests the 90.228 support. A breakdown here allows the bears to aim first for 90.00 (11 May low and psychological support) before allowing 89.711 to come into the fray as an additional downside target. 89.50 and 89.18 make up further targets to the south.
