FX Commentary – US Dollar Weaker On Softer CPI Data

Market Talk
– The dollar drifted within recent ranges against major peers on Wednesday after the release of softer-than-expected U.S. inflation casting doubt on the U.S. Federal Reserve’s timeline to begin asset tapering. Investors now await the central bank’s policy decision, due to be handed down next week.

– The CPI report delivered a lower-than-consensus August reading, a deceleration that supports Federal Reserve Chairman Jerome Powell’s assertion that spiking inflation is transitory and calms market fears that the central bank will begin tightening monetary policy sooner than expected

– Data out of China showed businesses were grappling with the impact of localized lockdowns following sporadic COVID-19 outbreaks, supply bottlenecks and high raw materials costs. However, the yuan was little changed against the US dollar.

– One euro bought 1.1808 on Wednesday, mostly flat from the previous session. The dollar slipped slightly to 109.59 yen, keeping close to the center of the trading range of the past two months. The U.S. currency edged higher against Aussie dollar to 0.7316.

– Gold was down on Wednesday morning in Asia, but remained above the $1,800-mark. Investors digested a weaker-than-expected rise in U.S. inflation that added to uncertainty over the Federal Reserve’s timeline to begin asset tapering

Chart Focus Gold

Key Points

1. Buy Gold recommendation.

2. Buy Gold at 1797.50. Stop at $1790.60 and profit target at $1816.25

3. Latest CPI data hints of a delay in the timeline for tapering which is likely to weigh on the US dollar

4. Price has made a Double Bottoms with momentum indicators hinting of a possible bottom as well.

Fundamental Comments

1. Latest CPI data shows that inflation is transitory.

2. A delay in the timeline for tapering is likely to weigh on the US dollar which had rallied on elevated inflation leading to a hike in interest rate.

Technical Comments

1. Price may have made a Double Bottom which is a hint of a likely reversal and rally in price

2. Divergence warnings from MACD and Stochastic are hinting of a possible price low.

Key Levels


Technical Overview

USD/JPY – We had a buy call on this pair yesterday but we were wrong. We lost 25 pips on this trade. Price has now approached the lower boundary of a 2-month range but MACD is starting to warn of a possible price low with divergence warning. Stochastic is also near to the oversold zone. However, 20EMA is pointing lower with a steep slope, warning of a bearish price trend.


EUR/USD – Price had moved lower to 1.1770 and this low is also just below the 50% Fibonacci 50% correction point of the rally from 1.1663 to the high at 1.1909. MACD has also given a divergence warning of a possible price low. Stochastic has turned up from the oversold zone. We think price may have reached a temporary low and we are looking for a rally to 1.1880 in the next few days.


GBP/USD – We were looking for a rally to 1.3935 but price only reached a high of 1.3913. This may be a temporary high as both MACD and Stochastic have given divergence warnings of a possible price high. However, 20EMA is flat at the moment. If price cannot move above 1.3870, we are likely to see the decline continue towards 1.3750 or 1.3715 in the next 1-2 days ahead.


NZD/USD – Price has been caught in a range for the past 2 weeks. This range is from 0.7075 to 0.7160. Momentum indicators are showing waning momentum when price is near to the upper range boundary. We think price could be about to break below the range’s low at 0.7075. A break of this support is likely to send price down to 0.6985 in the next few days. A move above 0.7160 would negate our bearish view.


AUD/USD – We had a sell call on Friday at 0.7395 and yesterday, we had recommended bringing stop lower to cost at 0.7395 and changing profit target lower at 0.7295. Overnight price reached a low of 0.7299. For today, we would recommend bringing stop lower to 0.7350 while keeping profit order at 0.7290. MACD is starting to warn of a potential low while Stochastic is near to the oversold zone.


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