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US inflation lower than expected; USD under pressure as Gold reclaims 1320

Summary:

  • US inflation metric misses forecasts
  • CPI M/M: 0.2% vs 0.3% exp 
  • USD under pressure after the release; Gold breaking higher

The latest data on US inflation has come in below forecast, following yesterday’s PPI release and this has threatened to derail the recent rally seen in the buck. This afternoon’s CPI release showed a Y/Y reading of 2.5% (vs 2.5% expected) but the M/M can be seen to be more sensitive to changes and it is here where the softness is a little more apparent with a 0.2% print vs 0.3% expected. 

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 In Y/Y terms the CPI core reading dropped a little below forecasts and is unlikely to apply pressure to the Fed to adopt a faster pace of tightening. Source: XTB Macrobond

Turning our attention to the core reading and there was more softening apparent with the Y/Y coming in inline with the previous print of 2.1% - although it was expected to increase to 2.2%. The M/M reading fell to 0.1% from 0.2% prior, against 0.1% expected.  Whilst this data on the whole doesn’t suggest that price pressures are falling significantly it does indicate that there is still an absence of any real upwards momentum in recent months and therefore it is unlikely to impact the Fed’s decision making for the time being. 

The USD has been on a strong run higher in recent weeks but there was some suggestion on Wednesday that this move may be set to pause, or even reverse, with a doji candlestick printed on the USDIDX. The EURUSD is by far the largest component of the USDIDX and a lot more popular amongst traders so let’s look at the charts.

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 EURUSD may be forming a possible reversal signal following a prolonged period of declines. Source: xStation

After the break of key support at 1.2155 following the latest ECB decision it’s been pretty much one way trade for this pair with a steady decline seeing a drop of more than 300 pips in the last couple of weeks. However, there could be signs of a potential reversal ahead with a morning star possibly forming. This setup would need today close to confirm the signal, but if price ends around these levels or higher then there could be a sign that the downtrend is under threat. Yesterday’s low of 1.1825 is a key level to look for support while fibs taken from the highs of the 1.2555 to the low may provide possible targets or resistance if the recovery takes hold. The 23.6% at 1.1995 is the first level to look for with the 50% at 1.2188 of particular interest if the market can get there as it also coincides with the prior support region around 1.2155. 

Another market that can be sensitive to CPI is Gold and a technnical overview of the precious metal can be found here.

 

 

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