As a key inflation signal, the CPI data release scheduled for the 14th, will provide a clearer outlook on the Fed’s bond tapering schedule

14 September 2021, 03:30

Market Focus

US stocks advanced today, ending a five-day slide. Energy group gave a remarkable performance among all. Crude oil prices surged approximately 1.5% on Monday, which lead to a 2.94% gain for energy companies. The OPEC Monthly Report released on Monday predicted a stronger demand for crude oil on a combination of rising fuel consumption and output disruptions elsewhere. Industrial metals also rose, as the price of aluminum reached the highest level in 13 years at $3000 a ton.

Healthcare companies, on the contrary, were the worst performing group on Monday. Moderna Inc slipped 6.60% on a daily basis, which weighed on the Nasdaq 100 index and kept it in negative territory. On top of that, market sentiment soured over the past few weeks, as investors were concerned that the spread of Delta variant around the world would obstruct economic growth. Retail and travel stocks declined.

Market focus has shifted to US core CPI data, which is scheduled to be released on Tuesday. Investors will use the reading to assess expectations about the timing of bond tapering and interest rate hikes. The CPI measures price change from the perspective of the consumer. It is a keyway to measure changes in purchasing trends and inflation.

Meanwhile, President Joe Biden’s $3.5 trillion tax-and-spending plan faced challenges. House Democrats on Monday released a package of tax increases that fell short of President Joe Biden’s ambition. The Democratic proposal from the Ways and Means Committee will raise the top corporate tax rate to 26.5% and the top rate on capital gains to 25%, both less than what Biden had proposed. This includes a 3.8% Medicare surtax on high earners, and the top capital gains rate would be 28.8%.

In Asia, Chinese technology stocks plunged as Beijing officials want to break up Alipay, the app owned by Ant Group that has more than 1bn users, and create a separate app for the company’s highly profitable loans business.

Main Pairs Movement

Most USD based currency pairs saw declines on Monday as the Greenback continues its strong upward momentum. The U.S. Dollar Index (DXY) saw a combined gain of 0.18% since last Friday, and a combined gain of 0.46% over the past week. A slower-than-expected economic recovery and the imminent release of CPI data this week has provided strong tailwind for the Dollar. As a key inflation signal, the CPI data release, scheduled for the 14th, will provide a clearer outlook on the Fed’s bond tapering schedule.

On Monday, house Democrats pieced together their initial proposal for a new wave of corporate tax increases over the next few years. The Democrats are aiming for a 26% increase on corporate tax rates from the current 21% to 26.5%, a 3% surtax on individuals earning over 5 million dollars a year, and a newly raised capital gains tax. This new tax bill proposal by the Democrats is their first step to achieving President Joe Biden’s tax agenda, which he set during last year’s campaign.

This Tuesday’s scheduled U.S. core CPI release by the BLS will bring substantial volatility to the currency market. Inflationary sentiment will be highly related to this report, and investors will be looking for any clues about the Fed’s bond tapering schedule.

Technical Analysis

GBPUSD (4-hour Chart)

The GBP/USD pair gained slightly on Monday, crawling back some of the losses on Friday. However, once American trading hours began, Cable saw a steep drop, then a rapid recovery but saw resistance at 1.384. The Greenback, supported by elevated producer price figures for August, remains bullish, suppressing Cable at its current price level and creating strong resistance at the 1.3895 price level, which has been unsuccesfully tested by Cable three times over the last month. Key CPI statistics are due on Tuesday, and if inflation remains high, the Federal Reserve could move up its bond tapering schedule.

On the technical front, RSI stands at 51 as of writing, suggesting bullish sentiment. Currently, Cable sits at the center of the bollinger bands with no clear movement direction after hitting the upper band on the 10th.

Resistance: 1.3857, 1.3884, 1.3958

Support: 1.3756, 1.3680, 1.3602

USDCAD (4- Hour Chart)

The USD/CAD pair did not see much price movement during the European trading session, the pair hovered between 1.266 and 1.269. However, once the American trading session began, the pair saw strong selling pressure and dropped as much as 0.29% to the day’s low of 1.266 over the first three hours of trading. The pair recovered towards the end of the American trading session and gained back 0.25%. The pair is trading at 1.267 as of writing. The upward movement of WTI has provided some level of support for the loonie, but the strength of the Greenback seems to offset the momentum provided by oil’s price rise.

On the technical front, RSI stands at 55 as of writing, suggesting that there is some bullish buying. The pair currently sits at the middle of the Bollinger Bands and is trading above the 50, 100, and 200 day moving average.

Resistance: 1.2708, 1.2834, 1.2912

Support: 1.2581, 1.252, 1.2494

AUDUSD (4- Hour Chart)

The AUD/USD pair began the day dropping 0.13%, but quickly recovered after the American trading session began. The pair met resistance at around the 0.737 price level and has since retraced back to around the 0.735 price level as of writing. The pair snapped its week long losing streak and has now found some support at the 0.735 prive level. The strong Dollar has supressed the pair’s growth, and this week could lead to more bulling Greenback movements as CPI data for August is due this Tuesday. Higher than expected U.S. CPI data could, once again, bring strong downward pressure for AUD/USD.

On the technical front, RSI stands at 44 as of writing, suggesting mild bearish sentiment ahead. Currently, the pair sits in the lower half of the Bolliner bands, while resistance for the pair sits at the middle of the Bollinger bands. As indicated earlier, higher-than-expected U.S. CPI data would put strong bearing pressure on the pair, thus lower support levels sit at 0.7285 and 0.7222.

Resistance: 0.7468, 0.7534

Support: 0.735, 0.7285, 0.7285, 0.7222