The weaker US inflation and dovish Powell comments mean the risk on and USD lower moves should be able to resume. Although, so far this morning it seems to be taking a little pause.
- Powell said that the Fed does not expect a large or sustained rise in inflation. He sees risks are to the downside from slower rollout of vaccines and added that they are not even thinking about withdrawing Fed policy support.
- US CPI YoY came in 1.4% vs 1.5% exp. CPI ex food and energy the same. This will help squash any short-term concerns about inflation. The FOMC was clearly not concerned.
- The USDCNH has had a surprise spike which is probably supporting USD here so seems best to be patient and wait for rallies in USD to sell.
- The weaker CPI print shows that the reflation theme may have got ahead of itself. Reflation trades such as long crossJPY and long crossCHF may therefore be able to pull back from these levels in the short term, given the move higher in USDCNH, being short AUDJPY and CADJPY rather than short USDJPY may make sense here. 104.13 ichimoku cloud top in USDJPY is support on the downside.
- GBPJPY also at an interesting juncture here after breaking the Feb 2020 high of 144.96 yesterday and topping out at 145.07. The lack of momentum on the break leaves the pair potentially looking set for a pull back.
- We were surprised to see AUDNZD back up here despite the run of strong data out of New Zealand. We topped out just above the 200dayMA at 1.0723 yesterday so potentially time to fade the move against that 1.0728 high.
- The RBNZ still appears to be leading the G10 central banks on the path to an exit of ultra-loose monetary policy. Particularly after the strong inflation data and moves to limit house price rises.
- EURUSD – The euro is still pointing higher as the dollar remains weak after Powell’s dovish comments. US equities were selling-off yesterday until the Fed intervened and saved the market once again by saying that rates will remain low for a while with an accommodative monetary policy. The bulls need to take out the 200-SMA and the 1.2170 resistance, for an extended rally towards 1.2215.
- GBPUSD – The cable attempting to break above 1.3850, eyeing 1.39, amid the continuous dovish/accommodative Federal Reserve policy. Additionally, UK’s Health Secretary Matt Hancock and PM Boris Johnson kept the hopes up of strong vaccine power after mixed updates over the rise of Covid death-toll figures. Today, the pair will likely consolidate below 1.3850 before breaking higher towards 1.39.
- USDJPY –USDJPY traders lacked conviction yesterday as the bulls and the bears couldn’t breakout from this tight consolidation. After yesterday’s Fed dovish speech, the pressure remains on the USD to resume its bearish trend. The bears need a break below 104.50 to open doors for further weakness towards 104.
- FTSE 100 – The FTSE 100 ended yesterday’s session in the red as the UK continues to lag its peers as a rising pound, on the back of a weaker greenback, and tighter Covid restrictions capped higher prints on the index. Mining shares supported the index, accounting for four of the top five risers, with technicals favouring higher prints in today’s session as long as 200 period SMA and 6520 support level holds, with 6550 and 6600 as resistance targets on the upside.
- DOW JONES – 8th consecutive session in the green for the Dow, printing new all-time highs after US inflation remained in the rear-view mirror, with CPI (MoM) registering within expectations at 0.3% vs. a previous of 0.4%. New all-time highs were accompanied by extreme volatility with the index dropping more than 200 points, only to recover losses and end the session in the green. Technicals favour higher prints as focus returns to earnings, with 31500 and 31600 as next resistance targets.
- DAX 30 – In line German CPI data did little to move the Dax 30 in yesterday’s session, while tracking a drop in US equities from all-time highs. Gains in commodities and financials helped keep the index supported, printing above the 200 period SMA and 13900 support level, with technicals favouring higher prints in today’s session, eying 14000 resistance target, after just released German Wholesale Price Index data came in better than expected.
- GOLD – Gold hit our resistance target at 1850 only to retrace all the way back to 1835 support level after Inflation readings out of the US lagged expectations. On the other hand, ongoing weakness in the greenback and comments by Federal Reserve Chairman Powell on employment kept the yellow metal supported. Technicals favour another run towards 1850, on an hourly close above 1840, as 200 period SMA and 1835 support level continue to hold.
- USOIL – WTI Crude attempted but failed to reach $59pbl, ending yesterday’s session slightly in the red, despite EIA data registering the biggest drawdown since March, of -6.44Mb (vs. Expected: 0.985Mb, Previous: -0.994Mb) as the black gold takes a breather after an 8 day rally. Demand continues to lag with tighter restrictions still in place with technicals favouring lower prints in today’s session, with $58pbl as closest support target.
Rony Nehme - Chief Market Analyst at SquaredFinancial
Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.