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Market Watchlist: US CPI Data and Currencies

The dollar experienced a sharp decline at the end of last week after maintaining its recent gains. The stronger concern expressed by Japanese officials, coupled with an implied threat of intervention, and perceptions of a higher likelihood that the ECB will implement another 75 bp hike next month, among other factors, could have sparked the pullback.

Before the US CPI report on Wednesday and after the ECB meeting, it is expected that dollar bulls will become cautious.

The US Dollar’s strong week came to an end with weaker fundamentals. Despite the turbulence surrounding the ECB rate decision in September, the EUR/USD rates were the ones driving the movement, rising +0.92%. Following new yearly lows, GBP/USD rates increased by +0.68%. The USD/JPY rates, which recorded another +1.77% rally, stood out among the major USD pairs.

The US Dollar Index’s -0.58% decline in the first full week of September indicates a possible failed bullish breakout, with the dollar index resuming its consolidation after closing above ascending triangle resistance the previous week. 

Week’s Technical Outlook

GBP/USD

Last week, the value of the pound briefly traded near $1.1405—the lowest level since 1985. That day, it closed above $1.15, seemingly rejecting the lows. Sterling reached nearly $1.1650 before the weekend as a result of the bullish hammer candlestick pattern, which suggested further gains.

According to data from analysts, 76.91% of traders are net long, with the long-to-short ratio at 3.33 to 1. The number of traders who are net-long is down 8.20% from yesterday and up 0.26% from the previous week, while the number of traders who are net-short is up 7.50% from yesterday and up 36.62% from the previous week.

Analysts frequently hold an opposite opinion to the general consensus, and the fact that traders are net-long GBP/USD suggests that prices may drop further. 

EUR/USD

Prior to closing higher on Friday last week, EUR/USD rates had recently reached a new yearly low. It’s important to note that at 0.9892, the pair finished the measured move of the April through July range. Rates for the EUR/USD seems to be set up for a short-term recovery.

The pair closed above its daily 5-, 8-, 13-, and 21-EMAs, indicating a shift in momentum from bearish to bullish, despite the EMA envelope being aligned in a bearish sequential order. Daily momentum indicators are trending higher above their median line, while daily MACD is trending higher even though it is below its signal line.

Greater assurance that a short-term bottom is forming is provided by the close above the daily 21-EMA (one-month moving average), which occurred for the first time since August 12. 

USD/JPY

Midway through last week, the dollar came close to JPY 145 for the first time in almost 25 years. Japanese officials issued stronger cautions as a result, expressing more worry about the volatility than the level or the direction. From a little under 10% in mid-August to over 13% last Wednesday, the three-month implied vol increased.

According to data from analysts, 23.96% of traders are net long, with a short-to-long ratio of 3.35 to 1. The number of traders who are net-long is down 4.94% from yesterday and up 1.45% from the previous week, while the number of traders who are net-short is down 11.45% from yesterday and down 1.32% from the previous week.

Analysts hold a different perspective from the general consensus, and the fact that traders are net short suggests that USD/JPY prices may rise in the future. 

USD/CAD

Since last month, USD/CAD has been rising, primarily due to the general strengthening of the US dollar. The Canadian economy’s terms of trade may have been harmed by the decline in oil prices, one of the country’s main exports.

Although the exchange rate has recently reversed some of this growth to trade just below 1.3050 before the weekend, it has still increased by more than 1.5% overall since August.

The U.S. dollar’s general trend is expected to be followed by USD/CAD in the upcoming sessions, which could temporarily overshadow Canadian economic developments even though they are still important overall.

Despite this, this week will bring significant US economic reports that could influence financial markets, the most significant of which is the brand-new CPI numbers scheduled for release on Tuesday. 

AUD/USD

On Monday, the AUD/USD currency pair kept moving in a bullish direction as the markets anticipated a continuation of the USD selloff. The main driving force behind this price change is the upcoming U.S. inflation report, which is projected to hit 5-month lows (8.1%) on the headline read.

Consumer confidence in Australia, which has been declining steadily month after month since November 2021, is scheduled to be released tomorrow. This will highlight the tighter monetary policy conditions as well as the destruction of demand caused by China’s economic problems and concerns about a potential global recession.

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Author

  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.