US inflation is slower at 6.5%

January 13, 2023

U.S. equities continued to march higher throughout Thursday’s trading. The initial CPI release sparked a downward spike across the three major equity indices, but as the American trading session began, all equity indices turned positive and closed higher by the bell. The Dow Jones Industrial Average gained 0.64% to close at 34189.97. The S&P 500 rose 0.34% to close at 3983.17. The tech-heavy Nasdaq Composite climbed 0.64% to close at 11001.11.

The benchmark U.S. 10-year treasury yield fell below 3.5% and was last seen trading at 3.445%, while the short-end 2-year treasury yield fell to 4.135%.

The December U.S. CPI figure came in at 6.5%, in line with market expectations. The Core CPI, which strips out food and energy prices, also came in at 0.3%, compared to last month’s reading of 0.2%. Market participants’ reaction to the as-expected CPI reading sparked a sell-off in futures markets before the market opened, but equity markets quickly recovered as short-term interest rate expectations fell. Markets are now pricing in a 25 basis point interest rate hike at the next FOMC meeting, and market participants are expecting 25 basis point interest rate hikes by the Fed moving forward.

Main Pairs Movement

The Dollar index, which tracks the U.S. Greenback against a basket of major foreign currencies, dropped 0.98% throughout yesterday’s trading. The short-term interest rate expectation dropped significantly after the CPI report, which came in as expected at 6.5%.

EURUSD rose 0.89% throughout yesterday’s trading. The weaker Dollar across markets allowed the Euro to extend its winning streak into the fifth straight day. EURUSD now faces a key level of 1.07.

GBPUSD rose 0.51% throughout Thursday’s trading. During today’s European trading session, the British GDP will be released. A softer reading of the British GDP could spark a rally for the British Pound.

Gold surged 1.1% throughout yesterday’s trading. The Dollar denominated Gold continues to climb above the $1850 per ounce mark as the Dollar continues to weaken.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced higher on Thursday, regaining upside traction and advanced for the fifth consecutive session following the release of US inflation figures during December. The pair is now trading at 1.0808, posting a 0.49% gain daily. EUR/USD stays in the positive territory amid a weaker US Dollar across the board, as the Inflation data triggered a decline of the greenback which trims losses after the Wall Street opening bell. The crucial US Consumer Price Index (CPI) declined to 6.5% every year in December from 7.1% in November, which came in line with the market expectation and decreased further from the multi-decade peak posted in June of 9.1%. Moreover, the comments from the Philadelphia Fed President Patrick Harker also exerted additional bearish pressure on the US Dollar, as he said it was time for future Fed rate hikes to shift to 25 basis points increments. In the Eurozone, the Euro is expected to thrive amid attractive ECB monetary policy amid the hawkish comments across the typical dove and hawk camps within the ECB.

For the technical aspect, RSI indicator 71 figures as of writing, suggesting that the pair could witness some short-term correction as the RSI is retreating from the overbought zone. As for the Bollinger Bands, the price moved out of the upper band but then move immediately back inside the band, therefore some downside movements can be expected. In conclusion, we think the market will be slightly bearish as the pair is still testing the 1.0786 resistance level.

Resistance:  1.0786, 1.0921

Support: 1.0722, 1.0612, 1.0508

GBPUSD (4-Hour Chart)

GBP/USD advanced further after the release of the US inflation figures. The US Bureau of Labor Statistics reported that the consumer price index fell 0.1% in December, meeting expectations, the biggest drop since April 2020. The core CPI, which excludes food and energy, rose 0.3%, also in line with estimates. On an annual basis, headline CPI rose 6.5% while core increased 5.7%. CPI report confirms that the inflation slowdown in the US, Fed’s Harker expects 25 bps hikes now. The US dollar index fell further to 102.3, which favours GBPUSD. At the time of writing, the pair is trading at 1.221. For more price action, eye on the UK GDP report on Friday.

For the technical aspect, RSI indicator 67 figures as of writing, above the mid-line, suggesting that the pair is in bullish momentum. As for the Bolling  Bands, the price edge is higher along with the upward average, signalling modest upside traction. The uptrend should persist. In conclusion, we think the gold price is in a bullish mode based on the technical analysis. For the uptrend scenario, the pair is now testing the resistance at 1.2233. The price needs a decisive breakthrough to trigger the follow-through buy interest. For the downtrend scenario, if the price drop below the support at 1.2110, it may change the current trend and head to test the pivotal support at 1.1927.

Resistance: 1.2233, 1.2450

Support: 1.2110, 1.1927

XAUUSD (4-Hour Chart)

The gold price soared to a fresh multi-month high after the release of the US inflation figures. The crucial US CPI report cemented the bets on a less aggressive policy tightening by the Federal Reserve. The US Bureau of Labor Statistics reported that the consumer price index fell 0.1% in December, meeting expectations, the biggest drop since April 2020. The core CPI, which excludes food and energy, rose 0.3%, also in line with estimates. On an annual basis, headline CPI rose 6.5% while core increased 5.7%. The gold price soared to a fresh eight-month high as the US dollar index dropped to around 102.3 and the benchmark US 10 Year Treasury Yield fell to 3.45%. At the time of writing, the gold price is trading at $1,898, slightly below $1,900 and seems poised to advance further.

For the technical aspect, the RSI indicator 70 figures as of writing, close to the overbought region, suggesting that the pair is in strong bullish momentum but at risk of a correction. As for the Bolling  Bands, the price soared to above the upper bound from the upward average, signalling the strong upside traction and the possible correction. In conclusion, we think the gold price is still in a bullish mode based on the technical analysis. That said, traders should aware of the risk of correction as the RSI indicator and Bolling Bands both signal an overbought sign. For the downtrend scenario, traders should aware of the key level at $1,870. If the price drop below this level on the 4H chart, it may change the current trend.

Resistance: 1909, 1919

Support: 1870, 1830, 1775

Economic Data