The Week Ahead: Has the US Dollar Index Trend Turned?

multiple currencies
Matt Weller
By :  ,  Head of Market Research

Key Points

  • Next week brings key inflation reports from three of the four largest economies on the planet.
  • US bank earnings, highlighted by JP Morgan, start on Friday.
  • Last week’s failed breakout may weigh on the US Dollar Index in the coming week.

The Week That Was

After a slow start, markets were busy in the latter half of last week:

  • The FOMC minutes didn’t provide much in the way of new information, though it is notable that Fed members cited ongoing inflation in “core services,” a key area of rising prices that Jerome Powell and Company remain focused on.
  • JOLTS Job Openings in the US fell to 8.79M, the lowest reading since May 2021.
  • The US ISM Manufacturing PMI improved from last month at 47.4, though the more significant Services PMI report fell sharply to just 50.6, signaling a potential slowdown in US economic growth at the end of 2023.
  • The equivalent Chinese Caixin Services PMI report improved to 52.9, hinting at a possible acceleration in the world’s second largest economy.
  • German CPI rose a mere 0.1% month-over-month in December.
  • US Non-Farm Payrolls rose by an above-expectation 216K in December, but downward revisions to previous reports mean the net gain was closer to expectations in the mid-100K area. Average hourly earnings continue to rise at 0.4% m/m.
  • Canadian employment rose just 100 jobs (not a typo) in December. The details were even more downbeat, with part-time jobs rising 23.6K and full-time jobs falling -23.5K.
  • Major indices fell across the board, with the tech-heavy Nasdaq 100 leading the way lower.
  • The US dollar and British pound were the strongest major currencies on the week; the Japanese yen was the weakest.

The Week Ahead - Calendar

Economic data will return to its normal cadence next week, so in the interest of brevity, these are the most important releases and earnings reports to watch:


  • No top-tier data or earnings


  • Australian Retail Sales
  • Tokyo CPI


  • Australia CPI


  • Chinese CPI and PPI
  • US CPI
  • Infosys Earnings


  • UK GDP
  • US PPI
  • Bank of America Earnings
  • Blackrock Earnings
  • Citigroup Earnings
  • JP Morgan Earnings
  • UnitedHealth Earnings
  • Wells Fargo Earnings

The Week Ahead – Key Events and Themes

Looking ahead to next week, the big theme to watch will be inflation. As the list above shows, there are key CPI reports from three of the four largest economies in the world (The US, China, and Japan), as well as a similar reading from Australia. Here are the expectations for each report in chronological order:

  • Tokyo Core CPI: Expected at 2.1% y/y from 2.3% last month
  • Australia CPI: Expected at 4.5% from 4.9% last month
  • US CPI: Expected at 3.2% from 3.1% last month (Core expected at 3.9% from 4.0% last month)
  • Chinese CPI: Expected at -0.4% y/y from -0.5% last month

While each of these countries faces their own challenges, there’s a clear trend toward expecting continued moderation in inflation, with meaningful declines in Japan and Australia and only a slight uptick in the US and China, due mostly to base effects. Unless we see big upside surprises, the ongoing trend of inflation falling toward central banks’ targets will remain on track, potentially setting the stage for a unified global easing of monetary policy (read: interest rate cuts) starting in the first half of the year.

Speaking of monetary policy, the other major theme to watch in the coming week will be the start of Q4 earnings season, highlighted by the major US banks reporting on Friday. On balance, banks are expected to report strong profits, benefitting from higher interest rates than in recent years(though the inverted yield curve may weigh on the results of some consumer-focused banks).

The standout is JP Morgan, which will be putting the finishing touches on a truly astonishing year. After decades of running neck-and-neck with the likes of Bank of America and Citi, JP Morgan has definitively taken the upper hand under the leadership of Jamie Dimon, so traders will eagerly await his thoughts on where we are in the economic cycle.


Source: Bloomberg

US Dollar Index Technical Analysis – DXY Daily Chart


Source: TradingView, StoneX

One final theme to watch in the coming week will be the US dollar.

There’s no doubt it was an interesting week for the US Dollar Index. After a day off to ring in the New Year, DXY rallied strongly to start the week, reaching as high as 103.00 in the immediate reaction to the US jobs report on Friday before reversing sharply to fall back into its 3-month bearish channel by the close.

The failed breakout and sharp bearish reversal suggests that a near-term top may be in and the path of least resistance will be to the downside in the coming week. Bears may look to target the round 102.00 handle, followed by the multi-month low near 100.60 next, whereas bulls will need to see a break and close above 103.00 before feeling comfortable that the well-established downtrend is coming to an end.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

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