Three considerations in response to US CPI

Today’s report: Three considerations in response to US CPI

All week we talked about the significance of Thursday’s US inflation data. We downplayed any volatility around the US midterm election results and had pinpointed the US CPI read as the one that could really move markets. And this is exactly how things played out.

Wake-up call

Chart talk: Technical & fundamental highlights

Choose pair:

EURUSD – technical overview

A break back above important resistance at 1.0200 suggests the market could be in the process of carving out a longer-term base after sinking to a multi-year low. Look for any setbacks to now be well supported ahead of 0.9900, with only a break back below 0.9730 to compromise the shifting outlook.

  • R2 1.0369 – 10 August high – Strong
  • R1 1.0222 - 10 November high – Medium
  • S1 1.0000 - Psychological – Strong
  • S2 0.9936 – 10 November low – Strong

EURUSD – fundamental overview

The Euro had initially been boosted on news of the Russian withdrawal from Kherson and ECB Schnabel comments that restrictive rates were needed to fight inflation, before accelerating even higher on the back of the softer US inflation data. Key standouts on Friday’s calendar come from German inflation, UK GDP, trade, industrial production, and construction output, the German current account, and US Michigan sentiment.

EURUSD - Technical charts in detail

GBPUSD – technical overview

Signs have emerged of the market wanting to put in a longer-term base after collapsing to a record low in September. A weekly close back above the September high at 1.1739 will solidify the recovery. Until then, look for setbacks to be well supported ahead of 1.1100.

  • R2 1.1901– 26 August high – Medium
  • R1 1.1739 – 13 September high – Strong
  • S1 1.1430 – 8 November low – Medium
  • S2 1.1334 – 9 November low – Strong

GBPUSD – fundamental overview

The market seems to be more accepting of the latest UK government economic package, something that has helped to fuel the GBP recovery. Of course, the Pound has also benefited from the softer than expected US CPI print. Key standouts on Friday’s calendar come from German inflation, UK GDP, trade, industrial production, and construction output, the German current account, and US Michigan sentiment.

USDJPY – technical overview

Longer-term technical studies are in the process of unwinding from severe overbought readings. Look for additional corrective price action back down towards the 130.00 area before the market considers the possibility of uptrend resumption. Rallies should now be well capped ahead of 147.00.

  • R2 145.10 – 27 October low – Strong
  • R1 143.00 – Figure/Ichimoku top – Medium
  • S1 140.20 – 10 November low – Medium
  • S2 140.00 – Psychological – Strong

USDJPY – fundamental overview

The Yen saw the biggest one day gain against the US Dollar since March of 2020, this on the back of the softer than expected US CPI print. Naturally, this has opened a massive shift in yield differentials back in the Yen's favour. Key standouts on Friday’s calendar come from German inflation, UK GDP, trade, industrial production, and construction output, the German current account, and US Michigan sentiment.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base following the recent surge back above 0.6500. However, we would need to see a weekly close back above previous support now turned resistance at 0.6682 to truly strengthen the bullish structural shift.

  • R1 0.6682 – 14 July low – Strong
  • R2 0.6652 – 11 November high – Medium
  • S1 0.6500 – Psychological – Medium
  • S2 0.6387 – 10 November low – Strong

AUDUSD – fundamental overview

The Melbourne Institute Survey of year-ahead inflation expectations have surged to a four-month high of 6%, metals prices are booming, and US inflation data came in softer. All of this has helped to fuel this latest surge in demand for the Australian Dollar. Key standouts on Friday’s calendar come from German inflation, UK GDP, trade, industrial production, and construction output, the German current account, and US Michigan sentiment.

USDCAD – technical overview

A recent surge back above 1.3000 signals an end to a period of bearish consolidation and suggests the market is in the process of carving out a more significant longer-term base. Next key resistance now comes in up into the 1.4000 area. Setbacks should be very well supported down into the 1.3000 area.

  • R2 1.3572 – 10 November high – Strong
  • R1 1.3400 – Figure – Medium
  • S1 1.3300 – Figure– Medium
  • S2 1.3227 – 20 September low – Strong

USDCAD – fundamental overview

The Canadian Dollar managed to get a boost from the softer US inflation data, though ended up underperforming against its peers on account of downbeat Bank of Canada Macklem comments. The central banker warned the labor market was facing a difficult adjustment, wage growth looked to be plateauing, and low unemployment was not sustainable. Key standouts on Friday’s calendar come from German inflation, UK GDP, trade, industrial production, and construction output, the German current account, and US Michigan sentiment.

NZDUSD – technical overview

Overall pressure remains on the downside with risk for the current recovery rally to stall out and form a lower top for the next major downside extension. A break back above 0.6162 would be required to take the immediate pressure off the downside.

  • R2 0.6162 – 13 September high – Strong
  • R1 0.6100 – Figure – Medium
  • S1 0.5841– 10 November low – Medium
  • S2 0.5741 – 3 November low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar got a nice boost on Thursday in the aftermath of the softer US inflation print and subsequent recovery in risk sentiment. We've since seen some softer New Zealand PMI reads and a surge in New Zealand food inflation, though the data is somewhat offsetting and hasn't really factored into price action. Key standouts on Friday’s calendar come from German inflation, UK GDP, trade, industrial production, and construction output, the German current account, and US Michigan sentiment.

US SPX 500 – technical overview

Longer-term technical studies are in the process of unwinding from extended readings off record highs. Look for rallies to be well capped in favor of lower tops and lower lows. Back above 4000 will be required at a minimum to take the immediate pressure off the downside. Next major support comes in around 3200.

  • R2 4150 – 13 September high – Strong
  • R1 4000 – Psychological – Strong
  • S1 3863 – 8 November high – Medium
  • S2 3699 – 3 November low – Strong

US SPX 500 – fundamental overview

We've finally reached a point in the cycle where the Fed recognizes unanchored inflation expectations pose a greater downside risk than over-tightening. This is significant, as it means less investor friendly monetary policy that risks potential recession in the months ahead. Overall, we expect inflation to continue to be a problem in Q4 2022 and Q1 2023 that results in downside pressure into rallies.

GOLD (SPOT) – technical overview

The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs. Setbacks should now be well supported above 1600 on a monthly close basis ahead of the next major upside extension. Back above 1808 will strengthen the bullish outlook.

  • R2 1808 – 7 August high – Strong
  • R1 1766 – 21 August high – Medium
  • S1 1665 – 8 November low – Medium
  • S2 1615 – 28 September/2022 low – Strong

GOLD (SPOT) – fundamental overview

The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about inflation risk and a less upbeat global growth outlook. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.

Peformance chart: 30 Day Performance vs. US dollar (%)

Suggested reading

Daily Reports Global FX Insights   LMAX Exchange  

Any opinions, news, research, analyses, prices or other information ("information") contained on this Blog, constitutes marketing communication and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further, the information contained within this Blog does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of, or solicitation for, a transaction in any financial instrument. LMAX Group has not verified the accuracy or basis-in-fact of any claim or statement made by any third parties as comments for every Blog entry.

LMAX Group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. No representation or warranty is given as to the accuracy or completeness of the above information. While the produced information was obtained from sources deemed to be reliable, LMAX Group does not provide any guarantees about the reliability of such sources. Consequently any person acting on it does so entirely at his or her own risk. It is not a place to slander, use unacceptable language or to promote LMAX Group or any other FX and CFD provider and any such postings, excessive or unjust comments and attacks will not be allowed and will be removed from the site immediately.