Shady US CPI data; 10 Year Auction and ECB ahead
Joe Perry March 10, 2021 11:21 PM
With the US auctions today and the ECB meeting tomorrow, price in both the DXY and EUR/USD can move in a hurry.
The highly anticipated CPI data for February was released earlier today, and the core data was slightly worse than expected. The headline CPI print for the more closely watched YoY rate was in line at 1.7% vs 1.4% in January. However, the Fed is more concerned about the core Inflation Rate, which excludes the more volatile food and energy prices. The core inflation rate YoY down ticked from 1.4% in January to 1.3% in February, vs a 1.4% expectation. Curious as to how the core rate could be lower with higher energy prices and higher food prices? The BLS said that “data collection in February was affected by temporary closing of limited operation of certain types of establishments”. In other words, the data is kind of spotty and shouldn’t be relied on.
Today, the US Treasury will auction off $58 billion of 10-year notes. Results will be made available shortly after 1:00pm ET. Yesterday’s 3-year note auction was strong. However, the longer-term duration auctions will be more closely monitored. (Tomorrow is a 30-year auction.). Recall on February 25th the 7-year auction that was extremely weak. This sent yields higher, primarily in the belly of the curve. 10-year yields shot up to 1.6%, and worried stock investors. Yields, bid-to cover ratio, and the number of indirect buyers should be monitored to determine whether the auction was successful. After the weak 7-year auction, bonds and stocks continued lower while yields and the US Dollar moved higher.
Source: Tradingview, City Index
After the weaker Core CPI data, which implies the Fed will keep its unprecedented QE for longer (as Fed members have been saying), the US Dollar Index (DXY) sold off and stocks went bid. This can be seen in the price action of EUR/USD, which is highly inversely correlated with the US Dollar Index. (EUR/USD was also our Currency Pair of the Week). The current correlation coefficient is -0.87 on a 240-minute timeframe. For reference, a reading of -1.00 means that the 2 assets are perfectly negatively correlated. After completing an AB=CD price pattern, EUR/USD moved higher and is approaching horizontal resistance near 1.1950, which dates to the lows of February 5th. Above there is the 38.2% Fibonacci retracement from the February 25th highs to the March 8th lows near 1.1990, which also confluences with horizontal resistance. Support is at the March 8th lows near 1.1835.
Source: Tradingview, City Index
Remember that the ECB meeting is tomorrow. See our ECB Preview here. With the US auctions today and the ECB meeting tomorrow, price in both the DXY and EUR/USD can move in a hurry.
Learn more about forex trading opportunities.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.