US Dollar Subdued as US Inflation Expectations Little Changed, CPI Data Ahead

US INFLATION EXPECTATIONS KEY POINTS:New York Fed one-year consumer inflation expectations remain unchanged at 5.0%, while the three-year-ahead gauge eases to 2.7% from 2.9%. For its part, the five-year outlook ticks up modestly to 2.5% from 2.4%Today‘s benign survey’s data fail to spark a significant market reaction as traders await the latest CPI reportJanuary headline inflation is seen clocking in at 0.5% m-o-m and 6.2% y-o-y. Elsewhere, the core measure is expected to print at 0.4% on a seasonally adjusted basis and 5.5% in the last 12-months

U.S. households outlook for inflation was little changed at several time horizons, according to a monthly survey released this morning by the Federal Reserve of New York. The data showed that inflation expectations for the year ahead remained unchanged at 5.0%, whereas the three-year gauge fell modestly to 2.7% from 2.9%. Meanwhile, the five-year outlook inched higher to 2.5% from 2.4% previously.

Today's results did not trigger significant volatility as traders continue to await the latest consumer price index report to make a more informed assessment of the inflation trajectory, with January's figures due to be released on Tuesday morning.

Headline CPI is forecast to have risen 0.5% on a seasonally adjusted basis at the outset of the year, bringing the annual rate to 6.2% from 6.5%. The core measure, for its part, is seen clocking in at 0.4% month-over-month, in line with Decembers reading. This would bring the year-on-year print to 5.5% from 5.7%, a small but welcome directional improvement.

Any upside surprise in tomorrows report will be beneficial for the U.S. dollar and add momentum to its recovery seen in recent weeks. On the flip side, if inflationary pressures abate more than anticipated, the greenback is likely to sell off as Wall Street reprices lower the path of FOMC hikes.

In terms of technical analysis, the DXY index appears to be consolidating slightly below channel resistance near 103.80/104.00. Traders should watch this region carefully in the coming sessions. If bulls manage to trigger a breakout, we could see a move towards 104.65, followed by a retest of Januarys high.

On the flip side, if prices are rejected from current levels, the first support to keep an eye on rests near the 103.00-handle, a floor created by a long-term ascending trendline. Below this area, the focus shifts to the 2023 lows.