This may be an important week for the future of USD, considering how merciless the recent currency sale has become. However, to stop the market, a particularly successful combination of factors is needed. First, PCE Core inflation would surprise with an acceleration higher than 1.6% y/y (consensus). Good data would open the way for the Fed to strengthen its hawkish message. Nevertheless, the January FOMC meeting (on Tuesday evening) should not abound in clear changes in the message. This is the last meeting led by Janet Yellen, and in January there is no press conference or new economic forecasts. On the other hand, this way the crossbar for hawk surprises is hung quite low. At the end of the week, the attention will shift to the labor market report, where employment is likely to rebound (185,000) at a weak pace in December (146,000). Traditionally, the tone of the report will depend on the dynamics of wages, and here a solid reading of 0.3% is expected due to the increase of the minimum wage in some states. If it pushes the annual dynamics to at least 2.7% (from 2.5% in December), it will be a positive impulse for USD.
Let's now take a look at the US Dollar Index technical picture at the H4 time frame. The market is trying to bounce after establishing the local low at the level of 88.45. The next important resistance is at the level of 89.52, and only a sustained breakout above the level would change to short-term outlook from bearish to slightly bullish. A bounce from the oversold market conditions supports the view.
