Hot December US inflation report fails to support USD

The USD remained relatively unchanged against its counterparts yesterday, despite the US inflation report for the last month of 2023 coming in hotter than expected. It should be noted that the headline CPI rate accelerated beyond market expectations and reached 3.4% yoy while on a  core level slowed down less than expected. The hotter-than-expected inflation report for December, in conjunction with the tighter-than-expected employment market for the same month, may allow Fed policymakers to maintain the bank’s narrative of high rates for a longer period contradicting the market’s expectations for an extensive rate-cutting monetary policy in the current year. Yet as mentioned in yesterday’s report the market seems to remain unconvinced and sticks to its dovish expectations. It was characteristic how the USD, gold and US stock markets wobbled for a while after the release yet returned practically to the positions they had before.

As for US stock markets, we note that the earnings season is practically to kickstart today with the release of the earnings reports of major banks. Among others, we note the releases of JP Morgan (#JPM), Bank of America (#BAC), Wells Fargo (#WFC) and Citigroup (#C). The release of the earnings reports is to show the financial health of each individual bank, yet in an aggregated manner may also shed light on financial conditions on the ground of the US economy and may have a macro effect.

On a technical level, the S&P 500 remained in a tight range bound motion as it seems to have hit a ceiling at the 4795 (R1) resistance line. We tend to maintain our bias for the sideways motion to continue between the 4795 (R1) resistance line and the 4690 (S1) support level. Yet we would note that the RSI indicator below our daily chart remains substantially above the reading of 50, implying a residue of a bullish market sentiment for the indicator that may push its price action higher. Yet for a bullish outlook, we would require the index to break the 4795 (R1) resistance line and aim for the 4950 (R2) resistance level. On the other hand, should the bears be in charge of the index’s direction, we may see the index aiming if not breaching the 4690 (S1) support line, opening the gates for lower grounds.

Back in the FX market we note the release of the UK’s GDP rates for November which showed an acceleration of the growth rate of the UK economy ahead of the Christmas season. The release on a macroeconomic level, tends to make the possibility of a recession more remote, a scenario that is enhanced also by the acceleration of the manufacturing and industrial output rates for the same month. Market-ways the pound got little support at the time of the release, yet its outlook seems to improve.     

GBP/USD edged higher yesterday breaking the 1.2735 (S1) resistance line again, now turned to support. We tend to maintain a bullish outlook for cable as long as the upward trendline initiated on the 3^rd of January remains intact. Furthermore, we note that the RSI indicator remains between the readings of 50 and 70 implying that there are still some bullish tendencies in the market sentiment. Should the pair find fresh buying orders along its path, we may see it aiming if not breaching the 1.2880 (R1) resistance line. Should a selling interest be expressed by the market, we may see GBP/USD breaking the prementioned upward trendline in a sign that the upward motion has been interrupted, break the 1.2735 (S1) support line clearly and set in its sights the 1.2600 (S2) support barrier. 

Other highlights for the day:

Today in the European session, besides the release of the UK GDP rates and manufacturing output growth rates for November we note the release of France’s final CPI (EU Normalised) rate for December. In the American session, we get the US PPI rate for December, while on the monetary front, we note that ECB chief strategist Lane and Minneapolis Fed President Kashkari are scheduled to speak.

US 500 Cash Daily Chart

Support: 4690 (S1), 4600 (S2), 4450 (S3)

Resistance: 4795 (R1), 4950 (R2), 5100 (R3)

GBP/USD H4 Chart

Support: 1.2735 (S1), 1.2600 (S2), 1.2445 (S3)

Resistance: 1.2880 (R1), 1.2995 (R2), 1.3140 (R3)

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