MARKET UPDATE: US Inflation Dips Unexpectedly to 3.3% in May, Fed Remains Cautious (13 JUNE 2024)

• US inflation and core inflation declines in May
• Federal Reserve holds rates as expected
• US dollar retreats against the majors, US stock market jumps

There was good news on the inflation front, as inflation decelerated in May and was lower than anticipated. This points to inflationary pressures easing, which is what the Federal Reserve wants to see before lowering interest rates.

The US consumer price index (CPI) climbed 3.3% year-on-year in May, down from 3.4% in February and below the market estimate of 3.4%. This was the lowest rate in three months. Food and shelter inflation fell while energy costs were higher. On a monthly basis, CPI came in at 0%, down from 0.3% in May and below the market estimate of 0.1%.

Core CPI, which excludes food and energy and is considered a better gauge of inflation trends, dropped to 3.4% year-on-year, down from 3.6% in April. Monthly, core CPI was flat at 0%, down from 0.3% in April and lower than the market estimate of 0.3%. This was the lowest rate in seven months.

Federal Reserve Holds Rates, Expects Only One Cut This Year 

The Federal Reserve maintained its key interest rate on Wednesday in a widely expected decision. The Fed has now kept the benchmark rate at 5.25% to 5.5% for seven consecutive meetings.

The rate statement noted that “inflation has eased over the past year but remains elevated”, which was similar language to the April statement. However, the new statement added that there had been “modest further” progress towards the Fed’s 2% inflation target. This was more dovish than the April statement, which said that there had been a “a lack of further progress” on inflation.

At yesterday’s meeting, the Fed projected just one rate cut before the end of the year. In December 2023 the Fed was much more dovish and had projected three rate cuts in 2024, but stubborn inflation has forced the Fed to delay rate cuts. The weaker-than-expected inflation report on Wednesday has boosted rate-cut expectations and the markets have priced in rate cuts in September and December.

US Dollar Slips, Stock Markets Surge After Inflation Report 

The unexpectedly soft inflation report and the dovish Fed rate sent the US Dollar sharply lower against most of the majors, while the US stock market posted sharp gains on Wednesday.

The US dollar posted losses against all the major currencies in the aftermath of the inflation release. The AUD/USD currency pair showed the sharpest move and climbed 0.87% on Wednesday. The US dollar has stabilized on Thursday at the time of writing.

The US stock markets surged on Wednesday in reaction to the inflation report. The Nasdaq 100 Index climbed 264.89 points (1.53%) and closed at 17,608.44. The S&P 500 Index climbed 45.71 points (0.85%) and closed at 5,421.03.

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Forex Today: #Hawkish #FOMC Questions #Inflation Progress, #Commodities Tumble (23 May 2024)

The release of the US FOMC meeting minutes yesterday produced a hawkish surprise, with the participants showing serious concerns over persistent inflation and the prospect of rate cuts, leading to a selloff of commodities and boosting the US Dollar.

1. The US Federal Reserve released the minutes of its most recent policy meeting, which revealed two hawkish factors:Members are broadly worried that despite seeming progress on inflation over recent months, it is proving stubbornly persistent.Members discussed that they may need to hold rates at their currently relatively elevated levels for longer than expected.

However, it is worth noting that according to the CME FedWatch tool, there remains a consensus that the Fed will make its first rate cut at its forthcoming September meeting.

1. Markets reacted quite strongly to the FOMC minutes release. The most dramatic drops were in metals, with the price of Copper falling by several percentage points in just a few hours, killing the long trend trade there. The precious metals Gold and Silver fell quite strongly. Major equity indices fared much better, as after initial small knocks, the the NASDAQ 100 Index and the S&P 500 Index have risen to new all-time highs, although the the Dow Jones 30 Index is falling. Trend traders and day traders should be interested in getting long of the two major stock indices at all-time highs.
2. In the Forex market, since the Tokyo open, the strongest major currency is the New Zealand Dollar, while the Japanese Yen is the weakest. The US Dollar is doing little right now, but it rose yesterday and can be expected to get a tailwind from yesterday’s FOMC meeting minutes.
3. Yesterday’s release of UK CPI data came in slightly higher than expected, with annualized inflation falling from 3.2% to 2.3%. A fall to 2.1% was expected. Core CPI also fell by less than expected. This will reduce the chances of the Bank of England cutting rates at either of its next two policy meetings, which is a disappointment for Prime Minister Sunak who yesterday called a general election for 4 July. The opposition Labour Party is expected to win by a landslide and return to power for the first time in 14 years.
4. There will be releases today of Flash Manufacturing and Services PMI data for the USA, Germany, the UK, and France.

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Canadian #Dollar Awaits #CPI: Forecasts for #USDCAD & #CADJPY (21 May 2024)

• The Canadian Dollar has been consolidating for several days below a key resistance level.
• The Yen has long term weakness, so long CAD/JPY could be a good trade if higher than expected Canadian CPI data is released later today, as this will likely strengthen CAD.

Canadian Dollar Index (CXY): Technical Analysis

The Canadian Dollar has been consolidating for a few days just below the key resistance level shown in the price chart below at 73.52. This follows a rise from April’s lows, which were produced by a continuing downwards trend since the start of 2024. This is an interesting recovery, and the Index now seems to be at a pivotal point, having already likely broken any convincing bearish trend line which could be drawn.

The short-term price action looks bullish as the price tests this resistance level again and again over recent days. However, if it continues to hold, the price action will eventually turn bearish.

If the price can get established above 73.52, it is likely to rise further, at least to the next resistance level at 74.11. so that could facilitate a good long trade.

The Forex market is relatively quiet right now, moving little.

Canadian Dollar Index (CXY): Fundamental Analysis

It is not surprising that the price is now at a pivotal point, as markets are awaiting the release of crucial Canadian inflation data, which is expected to show a decline in month-on-month inflation from 0.6% to 0.5%. If the number is higher than expected, it could be bullish for the Loonie.

The big surprise might be on the other side, with inflation falling even faster than expected. That could open up a real prospect of quicker rate cuts and that could see the Loonie sell off with some momentum, even if it does not last for very long.

USD/CAD Forecast: Technical Analysis

The USD/CAD currency pair has been consolidating for the past few days. This is not surprising as the Canadian Dollar and US Dollar have both been consolidating as individual currencies, so this pair is especially range bound between $1.3590 and $1.3662.

The price is near the top of its recent range where we already see a triple top, so if the price can rise much higher now that will likely be a bullish sign.

A bullish factor is the new higher support level at $1.3627 which has been generated by the recent bullish price action rejecting an earlier minor bearish inflection. This could provide a good floor for a long trade.

If Canadian CPI is lower than expected, then a bullish breakout is likely.

If Canadian CPI is higher than expected, but not by much, the price could fall quickly to $1.3590, where it might bounce hard, giving scope for a long trade there if that happens.

Support Levels:

• $1.3627
• $1.3590
• $1.3556

Resistance Levels:

• $1.3662
• $1.3704
• $1.3738

CAD/JPY Forecast: Technical Analysis

The CAD/JPY currency cross has sold off somewhat after making a new 3-week high price. This is not surprising as although the Canadian Dollar has been consolidating over recent days, the Japanese Yen is in a long-term bearish trend.

The price is falling with short-term bearish momentum towards support at ¥114.19. We may see a bullish bounce there if the level is reached.

If Canadian CPI is lower than expected, then the price will likely fall to either of the nearby support levels, and may produce a quick bounce there, giving a chance to enter a long trade on a scalping basis.

If Canadian CPI is higher than expected, this will likely be a great currency pair to use to exploit that by going long, as the price will likely shoot up to at least ¥115.00.

Support Levels:

• ¥114.19
• ¥113.66

Resistance Levels:

• ¥115.00
• ¥116.00

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USDCAD Analysis: Bearish Move Lower as Speculative Wagers Increase (15 May 2024)

The USD/CAD has continued to move lower since last week when the currency pair was traversing near the 1.37625 ratio on the 8th of May.

• As of this morning’s trading the USD/CAD is showing that financial institutions are leaning into their weaker USD centric positions.
• The gradual downturn in the USD/CAD the past week has now put the currency pair near interesting mid-term support levels.
• The USD/CAD is near the 1.36340 ratio as of this writing, the currency pair challenged these lows on Friday of last week and yesterday too.

Although the U.S printed a stronger than expected Producer Price Index yesterday, financial institutions continue to show a desire to maintain their bearish positions in the USD/CAD. Support levels should be watched carefully; on the 3rd of May the currency pair did approach 1.36050 before producing a buying surge.

USD/CAD and Today’s U.S Consumer Sentiment Report Data

While the USD/CAD is technically intriguing because it is bouncing up against rather strong support levels in the short-term, today’s CPI numbers from the U.S will deliver a definite impetus into Forex and volatility should be expected. The stronger than expected inflation numbers yesterday in the U.S did not dampen the enthusiasm of bearish traders who seem to be once again taking on the perspective the U.S Federal Reserve will need to cut its interest rate at some point.

However, if the Consumer Price Index numbers come in with a stronger than anticipated outcome today in the U.S, this could provide an additional shockwave into Forex. Perspective will certainly get tested later today depending on the readings from the U.S inflation reports. Traders with open positions in the USD/CAD before the CPI release should be extraordinarily careful regarding their risk taking tactics.

Reactions and Speculation to Come in the USD/CAD

If the U.S produces weaker than expected inflation numbers today this would seemingly help traders with a weaker USD centric perspective. Yesterday’s PPI data caused a short-term wicked storm in the USD/CAD and broad Forex market, but within about half an hours volatility subsided and the USD returned to its weaker stances against many major currencies. However, if the CPI statistics today are stronger than expected (on top of yesterday’s outcome) this could rattle the confidence of financial institutions which may need to reconsider their mid-term outlooks regarding the Federal Reserve.

• Traders need to be ready for volatility today and the use of stop loss and take profit orders are urged for speculators without deep pockets.
• Traders should anticipate the price range of the USD/CAD to widen before and after the release of the U.S CPI data.
• The 1.36000 ratio is certainly within the sights and goals of bearish USD/CAD traders, but they will likely need weaker U.S inflation numbers to attain this lower level in a sustained manner.

Canadian Dollar Short Term Outlook:

Current Resistance: 1.36455

Current Support: 1.36310

High Target: 1.36920

Low Target: 1.35970

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USDMXN Forecast: #US #Dollar Continues to Fight Against the #Mexican Peso (9 May 2024)

• The US dollar has rallied a bit against the Mexican peso during the early hours on Wednesday, as we continue to see a lot of volatility overall.
• Keep in mind that the interest rate differential actually favors Mexico in this equation, and that’s part of why we had seen such a strong downtrend for so long.

That being said, we are in between the 50-day EMA and the 200-day EMA indicators, and that, of course, is an area you normally see a lot of volatility in. This is mainly due to a lot of technical traders placing trades in one direction or the other. More importantly, we’re around the 17 pesos level, which has a certain amount of psychology attached to it, and then you also have to keep in mind that there’s probably options barriers in that neighborhood as well.

Risk Appetite Continues to Matter

Because of this, I think we’ll have to pay close attention to how things play out because there is a risk appetite component in the USD/MXN pair. Keep in mind, people generally run to the US dollar in times of trouble and away from emerging market currencies regardless of the interest rate that you get paid. Beyond that, Mexico is highly levered to the US economy as it is now the number one exporter to the United States.

And obviously there’s a major influence on Mexican corporations and factories, et cetera, depending on what’s coming out of the U.S. With all of that being said, it does look like there is a large amount of clustering above that could cause some issues. And therefore, I think it’s going to be difficult to rally from here significantly. However, if we were to rally above 17.30 pesos then you have to think that perhaps the trend change is in the cards. It could be a difficult move, but it’s worth noting that if we do rally at this point in time, it could lead to not only the Mexican peso struggling, but also quite a few emerging markets as well.

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US #Inflation Higher Than Expected, Accelerates to 3.5% (10 April 2024)

• The US consumer price index (CPI) climbed 3.5% year-on-year in March, up from 3.2% in February and above the market estimate of 3.4%. This was the highest inflation rate since September.

On a monthly basis, CPI remained unchanged in March at 0.4%, higher than the market estimate of 0.4%. The increase in inflation was mainly due to rising energy and shelter costs.

Core CPI, which excludes food and energy and is closely watched byn the Federal Reserve, was unchanged at 3.8% in March and just above the market estimate of 3.7%. Higher shelter costs were responsible for most of the increase. Monthly, core CPI rose 0.4%, matching the previous two months and above the market forecast of 0.3%.

US inflation has accelerated for a second straight month, a reminder that although inflation appears under control, the final sprint to the 2% target will be a challenge for the Federal Reserve.

The Fed would like to provide relief to consumers and businesses by lowering interest rates, but there are two reasons why an initial rate cut is not around the corner. First, inflation has remained persistently high and has moved higher over the past two months. The Fed does not want to lose more ground in the battle with inflation, and lowering rates too early could see inflation rise further and force the Fed to raise rates.

Second, the US economy has been surprisingly resilient despite the steep rise in rates, with last week’s blowout nonfarm payrolls the latest example. The Fed needs the economy to cool if inflation is to be brought down to 2%, which means that it will have to prolong its “higher for longer” stance until the economy shows signs of slowing down.

The markets have lowered expectations of a rate cut in June or July due to the strong inflation report and have not fully priced a rate cut until September.

US Dollar Shines, Stock Markets Fall Hard After Inflation Report

The inflation report means that the Fed is likely to push off a rate cut, which has sent the US dollar sharply higher, and the US stock markets considerably lower, within the first few hours following the data release.

The US dollar has posted strong gains against all the major currencies in the aftermath of today’s inflation release. The EUR/USD currency pair is down 0.86% and the GBP/USD currency pair has declined 0.72%. The AUD/USD currency pair has been hit especially hard and is down 1.47%.

The US stock markets are lower following today’s inflation report. The Nasdaq 100 Index is down 182 points (1.01%) at 17,984 and the S&P 500 Index has dropped 60 points (1.13%) at 5151 in early trading on Wednesday.

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USDCAD Analysis: After the Rocket Launch Higher, Near-Term Thoughts (14 Feb 2024)

The USD/CAD has found some tranquility in the past few hours after yesterday’s surge higher when U.S inflation numbers propelled the currency pair upwards.

• Traders who survived yesterday’s rocket launch of the USD/CAD are likely looking at the currency pair today and wondering what is next.
• It is unlikely that price velocity like Tuesday’s will be seen again in the near-term.
• Financial institutions which were nervous going into the CPI numbers from the U.S yesterday reacted in a violent manner as their inflation fears were realized.
• The USD/CAD hit a high of nearly 1.35870 during the lightning quick price action. The currency pair is now near 1.35465.

The higher than anticipated Consumer Price Index numbers from the U.S yesterday likely caused most USD/CAD short sellers agony as they watched their positions turn into losses. The apex values touched however, hit values seen on the 13th of December. While financial houses globally proved they are nervous about what the U.S Federal Reserve will do this coming spring, it appears they are still positioned for an interest rate cut. At this juncture it can be argued the Fed needs to change its rhetoric once again and start to lean towards a more aggressive sounding monetary policy for the mid-term. Tomorrow and Friday will add to near-term nervousness with U.S new data reports.

Calm Seen After Highs Hit in the USD/CAD

The USD/CAD has shown the ability early this morning to trade a bit lower. The currency pair has mirrored the broad Forex market as some weakness in the USD has emerged early today. No, the USD/CAD is not going to suddenly move violently downwards. Traders will likely have to deal with the higher value range which has been created over the near-term. But speculative traders may believe resistance levels are interesting as technical ratios to consider some selling wagers, but they should keep in mind coming U.S economic data.

The 1.35000 to 1.36000 price range can be assumed technically to offer a wide road map of current probabilities for the USD/CAD. However speculators will want a more precise price territory to look at and may consider the 1.35200 to 1.35700 ratios as potential low and high values. There are no guarantees and traders will need to practice strict risk management the remainder of this week.

U.S Data Coming Tomorrow and on Friday for Speculators

• Retail Sales numbers will come from the U.S tomorrow. And on Friday the Producer Price Index inflation numbers will be published.
• Although the USD/CAD is unlikely to be hit by the same type of volatility as seen yesterday, it would be wise for speculators to keep their eyes on tomorrow’s consumer spending numbers and Friday’s PPI data.

Canadian Dollar Short Term Outlook:

Current Resistance: 1.35560

Current Support: 1.35390

High Target: 1.35710

Low Target: 1.35210

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