Looking at today's and yesterday's volatility, it seems that traders prefer to trade in narrow ranges so far. After the latest inflation data in the US was published last Tuesday, the dollar strengthened sharply. The Bureau of Labor Statistics reported that August inflation in the US rose above expectations: the consumer price index (CPI) came out with a value of +8.3% (year-on-year) against the forecast of +8.1% and +8.5% in the previous month. On a monthly basis, inflation rose by +0.1% from 0% in July, which was higher than expected for a decline of -0.1%.

It follows from the report that inflation has begun to gain momentum again. That, in turn, makes a 75 basis point rate hike at next week's FOMC meeting now "virtually guaranteed," economists say. According to them, "a sustainable return to 2% inflation is now becoming even more distant," and the Fed still has "a long way to go" to bring inflation back to its target. And this means that more than one increase in the Fed's interest rate by 0.75% is possible at each subsequent meeting. This is a strong bullish factor for the dollar.

At the same time, buyers of the dollar still decided to take a break on the eve of the Fed meeting. Perhaps they are waiting for new macro statistics from the US to better assess the prospects for further action of the Fed.

Today, the weekly report on jobless claims from the US Department of Labor will be released, as well as the report from the US Census Bureau on retail sales. The state of the labor market (together with data on GDP and inflation) is a key indicator for the Fed in determining the parameters of its monetary policy.

Meanwhile, the retail sales report is the leading indicator of consumer spending, which accounts for most of the overall economic activity of the population, and domestic trade accounts for the largest part of GDP growth.

One way or another, today, futures for the dollar index (DXY) are trading in a narrow range, near the high of Tuesday and this week. As of writing, they are close to 109.37. Despite the correction, the long-term positive dynamics of the dollar and its DXY index remain. A break of this week's high at 109.65 will set the DXY up further to 20-year levels above 120.00.

The DXY index (reflected as CFD #USDX in the MT4 trading terminal) is trading near 109.56 at the time of publication of this article.

In case of breakdown of the short-term support level 109.20 (200 EMA on the 1-hour chart), the decline may continue to support levels 108.18, 107.60, if today's reports of the Department of Labor and the US Census Bureau disappoints.

Support levels: 109.20, 108.65, 108.18, 107.60, 106.00, 105.00, 104.15, 102.70

Resistance levels: 110.00, 110.76, 111.00

Trading Recommendations

Sell Stop 109.10. Stop-Loss 110.10. Take-Profit 108.65, 108.18, 107.60, 106.00, 105.00, 104.15, 102.70

Buy Stop 110.10. Stop-Loss 109.10. Take-Profit 110.76, 111.00, 112.00, 113.00