Market News & Analysis
Weak US CPI Data Continues; Decision Time for DXY
Joe Perry January 15, 2020 12:48 AM
According to the Federal Reserve Bank of Chicago, the US Federal Reserve’s Federal Open Market Committee (FOMC) sets US monetary policy. The FOMC has a dual mandate: maintain Price Stability and Maximum Sustainable Employment. Most recently, US jobs data was released for the month of December. Data showed that the Unemployment Rate for December was 3.5%, which is the lowest Unemployment Rate since the early 1970s. Clearly, the Fed is doing a good job on maximizing sustainable employment.
Today, the US released inflation data for December, which is a measure of price stability. The Consumer Price Index (CPI) for December (MoM) was 0.2% vs and expectation of 0.3%. The Core CPI for December (MoM), which excludes the volatile prices of food and energy, was 0.1% vs an expectation of 0.2%. Although increasing, a Core CPI of only 0.1% does little to help the Fed in terms of maintaining price stability.
Although the US Dollar Index (DXY) was little changed on the data release, if inflation does pick up then the value of the US Dollar theoretically should move higher over time (although there are many factors at play in determining market value).
Technically, the DXY is at a confluence of resistance. On a daily timeframe, DXY had been in an upward sloping channel since May of last year. In early December, price broke lower to the 50% retracement of the June 13th low to the October 1st high and bounced to retest the bottom upward sloping trendline of the channel near 97.50.
Source: Tradingview, City Index
If we zoom in a bit on the daily chart, we can see on that price as formed a new, downward sloping channel from the high of October 1st. Not only is price testing the longer term trendline, but it is also testing the top trendline of the new downward sloping channel! In addition, the 200 Day Moving Average is just above at 97.70. We can also see from in the candlestick formation that there are long upper wicks on the candles of the last 4 days (including today). This indicates that there was US Dollar buying early in the session, however by the end of the day, sellers had overtaken the buyers and pushed price lower.
Source: Tradingview, City Index
If the resistance and end of day selling pressure continues, DXY could pull back to horizontal support near 97.00, which is previous highs that now act as support. Next support is at the December 31st lows near 97.40. Third level of support is the previous low of June 25th near 95.84. If DXY manages to break through the topside resistance, first resistance is 98.50/60 (horizontal resistance) and then the October 1st highs near 99.70.
Later this week, we have the Producer Price Index, Export Prices, Import Prices, and Michigan Inflation Expectations. These are all measures of price stability. Recently, this data has not had a large effect on the US Dollar. However, if there is a large outlier in the data, it may cause the DXY to be volatile.
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.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.