USD stabilizes after initial CPI-driven drop – OCBC

US Dollar (USD) fell post CPI report but subsequently retraced losses as markets skepticisms about CPI report grew. DXY was last seen around 98.69 levels. Inflation eased unexpectedly in Nov, with headline and core CPI at 2.7% and 2.6% (vs. 3.1% and 3% expected) respectively. Deceleration was due to decline in costs of hotel, recreation and clothing while shelter prices saw a relatively smaller increase, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Market skepticism limits immediate Fed reaction

“The unusually large deviation between reported print and expectations has drawn attention to potential data-collection challenges caused by the government shutdown as well as possible distortion due to Black Friday sale. As a result, markets were reluctant to extrapolate the print into a materially more dovish Fed path, helping the USD stabilize after the initial knee-jerk reaction. 30d fed fund futures still implied ~26% probability of a Jan cut while expectation for cumulative cut for 2026 remains largely steady at -62bps.”

“Attention now turns to the Dec CPI release scheduled for 13 Jan, which will be the final major inflation datapoint ahead of the 28 Jan 2026 FOMC meeting. That print will be critical in determining whether Nov’s softness is corroborated by a second consecutive data point or dismissed as a statistical outlier. For the USD, sustained downside pressure likely requires clearer evidence of persistent disinflation.”

“Mild bearish momentum on daily chart intact though there are tentative signs of it waning while RSI showed signs of turning higher from oversold conditions. 2-way trades likely in the interim. Compression of moving averages observed with 21, 50, 200 DMAs converging. This typically precedes break-out trade. Support at 97.90, 97.60 (23.6% fibo). Resistance at 99.10/20 levels (21, 50, 200 DMAs, 50% fibo retracement of May high to Sep low) and 99.80 levels (61.8% fibo).”