The US CPI rose 6.2% YoY and 0.9% MoM; while the core CPI rose 4.6% YoY and 0.6% MoM, all of which was much higher than expected

11 November 2021, 03:22

Market Focus

US stocks continued to fall in the past trading day and have been weak since the market opened. Because the US consumer price inflation report in October was much hotter than expected, inflationary concerns have led to massive sell-offs. The data showed that the overall CPI rose 6.2% YoY and 0.9% MoM; while the core CPI rose 4.6% YoY and 0.6% MoM, all of which was much higher than expected. The YoY growth rate of CPI was the highest since 1990, while the YoY growth rate of the core CPI was the highest since the early 1990s. The worst inflation seen since 1990 has forced investors to further believe that the Fed will have to raise short-term interest rates faster from historical lows. This, in turn, caused U.S. Treasury yields to have their biggest increase in months. Higher yields tend to hurt high-growth stocks, with the S&P 500, Dow Jones Industrial Average and Nasdaq all falling.

After the market closed, the S&P 500 fell 0.8% to 4,646.71, the Dow Jones Industrial Average fell 0.7% to 36,079.94 and the Nasdaq fell 1.7% to 15,622.71. Energy stocks were one of the sectors with the largest decline in the S&P 500. Coterra Energy, Occidental Petroleum, Hess, Diamondback Energy and Halliburton all fell about 5%.

Main Pairs Movement

The consumer price index surged to its highest level in 30 years in October, rising by 6.2% YoY, leading to soaring yields and falling stock markets, reflecting increased concerns about further tightening policies.

In such a state of high inflation, U.S. Treasury bond yields have soared, the U.S. dollar has risen, and gold has skyrocketed because of risk aversion. Hence, the market expects that the Fed will need to accelerate its bond scale reduction in the face of long-term inflation. Currently, market participants expect the Fed to raise interest rates in June 2022.

With the soaring of the greenback, most of the rival currencies fell against the U.S. dollar. At the time of writing, the EUR/USD settled below 1.1500, its lowest since July 2020, and stayed around the level of 1.4864. GPB/USD is near the level of 1.34178, which is also below its support level.

XAU/USD hit a recent high of $1,868.61 and then retreated. It is currently at $1,852.33 per ounce, which is still on an upward trend.

Technical Analysis

GBPUSD (4- Hour Chart)

GBP/USD declined on Wednesday, surrounded by heavy selling amid a stronger US dollar across the board. The pair was trading in consolidation in the early Asian session, but bears started to take over during the European session. US CPI data showed that the headline CPI rose 0.9% MoM in October and the yearly rate accelerated to its highest since 1990 at 6.2%. Therefore, the hotter-than-expected US CPI underpinned the greenback as it reinforced speculations about an early policy tightening by the Fed. In the UK, dovish BoE and Brexit concerns continue weighing on the GBP/USD pair.

On the technical side, the RSI indicator is at 34 as of writing, suggesting bearish movement ahead. For the MACD indicator, a death cross showed on the histogram, indicating a possible downward trend for the pair. If we take a look at the Bollinger Bands, the price crossed above the moving average after touching the higher band. Therefore, the lower band has become the loss target. In conclusion, we think that the market will be bearish as the pair is heading to test the 1.3424 support. If the support line doesn’t hold, additional losses could be expected.

Resistance: 1.3607, 1.3698, 1.3835

Support: 1.3424

AUDUSD (4- Hour Chart)

Following the previous day’s heavy losses, the AUD/USD pair has stayed in the negative territory for the second day on Wednesday, currently losing 0.18% on a daily basis. The pair witnessed fresh buying after the release of the US CPI data, but then quickly reversed its intraday gains and dropped to a monthly low. The hotter-than-expected US consumer report underpinned the US dollar and put some selling pressure on the pair, as the headline CPI rose 0.9% in October, which is the largest advance in four months. The data added to concerns about high inflation and acted as a tailwind for the US Treasury bond yields. Investors now await the release of the Australian jobs report tomorrow.

For the technical aspect, the RSI is at 37 as of writing, suggesting bearish movement ahead. As for the MACD indicator, The MACD is now sitting below the signal line, which also indicates a possible downward trend for the pair. Looking at the Bollinger Bands, the price has moved alongside the lower band, therefore the bearish momentum is likely to persist. In conclusion, we think that the market will be bearish as the pair has failed to break the 0.7433 resistance and is now heading to test the 0.7324 support.

Resistance: 0.7433, 0.7474, 0.7555

Support: 0.7324, 0.7227, 0.7170

USDCAD (4- Hour Chart)

USD/CAD advanced on Wednesday amid US dollar strength, touching a fresh daily top at the time of writing. Despite dropping to a six-day low after the US CPI report, the pair rebounded back above the 1.245 level as the DXY index regain upside momentum. On top of that, falling crude oil prices weighed on the Loonie after the latest official weekly US crude oil inventory report was released. The report showed that crude oil stocks had risen by just over 1 million barrels last week. But crude oil’s near-term prospects should remain bullish given the fact that global oil demand is recovering to pre-pandemic levels.

On the technical side of things, the RSI indicator is at 60 as of writing, suggesting bullish movement ahead. Looking at the MACD indicator, a golden cross is forming in the histogram, which indicates a bull market. As for the Bollinger Bands, the price is moving out of the bands, so a strong trend continuation can be expected. In conclusion, we think the market will be bullish as the pair may try to re-test the 1.2499 resistance, a recovery above 1.2499 should strengthen the positive tone.

Resistance: 1.2499, 1.2648, 1.2775

Support: 1.2378, 1.2326, 1.2288