Despite the significant strengthening of the dollar index (DXY) at the beginning of the month after the release of a strong U.S. labor market report, it still maintains a negative trend since October, after reaching a local 20-year high of 114.74 at the end of September. As of writing, DXY futures (CFD #USDX in the MT4 trading terminal) were trading near 103.63, remaining for several days in the range between 104.03 and 102.39.

Obviously, the dollar needs new drivers to break through this range in one direction or another.

The day before, the dollar got a boost from the macro data coming from the USA: the retail sales were up +3.0% in January (against -1.1% decline of the previous month and the forecast of +1.8% growth).

But most economists believe that the dollar and its DXY index will continue to decline towards the key and psychologically strong level of 100.00. Economists assess the prospects for a further increase in the Fed's interest rate ahead of the central bank meeting on March 21 and 22 after the release of consumer inflation data on Tuesday. According to these data, the annual CPI in January slowed down from +6.5% to +6.4%. Although inflation in the U.S. remains unacceptably high for the Fed, it continues to decline from a 40-year peak reached in June at 9.1%. This means that the Fed may continue to ease interest rate growth.

The interest rate hike at the March meeting will likely be the last for this year. If the labor market starts to deteriorate as well as the economy due to the U.S. central bank's tight monetary policy, the probability of a reversal in the other direction will grow even more.

Today, market participants, especially those who follow the dollar quotes, will pay attention to the publication (13:30 GMT) of the weekly statistics on jobless claims and the PPI for January. Forecasts suggest jobless claims rose, and PPI slowed to 5.4% in January from 6.2% in December. These are negative numbers for the dollar. The PPI data, in particular, also suggests some easing of inflation pressures, including on the Fed as it makes another decision to tighten monetary policy. If the data on producer prices and the number of jobless claims turn out to be better than the forecast (higher than the forecast values), the dollar is likely to strengthen.

During the American trading session, speeches by a number of representatives of the Fed leadership are also expected.

Support levels: 103.21, 103.00, 102.00, 101.50, 101.00, 100.00, 98.75

Resistance levels: 103.75, 104.00, 104.70, 105.10, 107.80, 109.25

Trading scenarios

Dollar Index CFD #USDX: Sell Stop 103.45. Stop Loss 104.10. Take-Profit 103.21, 103.00, 102.00, 101.50, 101.00, 100.00, 98.75

Buy Stop 104.10. Stop-Loss 103.45. Take-Profit 104.70, 105.00, 107.80, 109.25