U.S. CPI A Non-Event, USD Eyes Powell Testimony

U.S. CPI was released earlier today as the headline number MoM for October came in stronger than expected at 0.4% vs 0.3% expected and 0.0 in September. However, the more important component of the data was the release of U.S. Core CPI YoY. This is one of the major data points that the Fed watches to get a better gauge of true inflation as it excludes food and energy prices. The U.S. Core CPI YoY for October was slightly weaker at 2.3% vs. 2.4% expected and 2.4% last. Note that this figure is still above the Fed’s target rate for inflation of 2.0%.

Speaking of the Fed, Chairman Powell is testifying before the Joint Economic Committee (JEC) to give the Fed’s updated views of the U.S. economy. Chairman Powell stated recently that the economy “is in a good place.” Markets watching to see if he echoes those comments today. If so, this will confirm the FOMC’s sentiment that interest rates are on hold for the time being. The market is currently pricing in a 96% chance of the FOMC leaving rates unchanged at its December 11 meeting.

The U.S. Dollar Index, in particular, is paying attention to any signs from Powell indicating an expected change in inflation and employment. On a weekly chart, price has been trading in an upward sloping channel since May 2018. Price tried to break lower out of the channel a few weeks ago, however ran into support and was rejected at the upward sloping bottom trendline of the channel and the 50-week moving average.

Weekly USD

Source: Tradingview, FOREX.com

On a daily timeframe, we can see clearly that the USD formed a flag near the lows and tried to break lower through the channel support and the 200-day moving average, only to fail as bulls gained control and turned it higher back into the channel range.

Daily USD

Source: Tradingview, FOREX.com

On the 4-hour chart, price put in a double bottom at the lows near 97.15. The target for a double bottom is the height of the pattern added to the breakout point. This level of 98.60 coincides with previous support (which now acts as resistance) as well as the 61.8% Fibonacci retracement of the highs on October 1 to the lows on November 1. Price has currently stalled near 98.38, near the 50% retracement of the previously mentioned timeframe. Horizonal support is below or near the breakout point at 97.87.

4-Hour USD

Source: Tradingview, FOREX.com

Powell’s question and answer session follow his testimony will most likely be just as important as the text itself.

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