USD loses ground as CPI rates slow down

The USD retreated substantially across the board yesterday, as the US CPI rates for October slowed down more than expected, indicative of the easing of inflationary pressures in the US economy and solidifying the market’s expectations for the Fed to stop its rate-hiking path. Overall, the market sentiment tended to become more positive with riskier assets such as equities and commodity currencies enjoying some support while the weakening of the USD enabled gold’s price also to rise reflecting the negative correlation of the USD to the precious metal. Attention today is expected to shift towards the US PPI rates for the same month and should the rate verify the easing of inflationary pressures also on a producer level, we may see the USD weakening further. Also, the US retail sales growth rate for October is expected to drop into the negatives, a sign of weakening demand for the US economy, which if verified may also weaken the USD.

S&P 500 jumped yesterday breaking the 4465 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the index given that the upward trendline guiding it remained intact, while the RSI indicator below our daily chart, has reached the reading of 70, implying a strong bullish sentiment on behalf of the market. Yet the fact that the RSI is at 70 may also serve as a warning that the index is nearing overbought levels and may cause the bulls to hesitate or even the index to correct lower. Furthermore we note that the index’s price action has reached the upper Bollinger band, also implying that the bulls may be slowing down. Should the buying interest be maintained, we may see the index breaking the 4540 (R1) line and aim if not breach also the 4610 (R2) level. Should on the other hand the index find selling orders along its path, we may see it breaking the prementioned upward trendline, in a first signal that the upward movement has been interrupted, break also the 4465 (S1) support line and aim for the 4400 (S2) base.

Back in the FX market we note that the strengthening of the Aussie may also be attributed to the mixed Chinese data which were released during today’s Asian session, with the industrial output growth rate for October accelerating slightly above market expectations, a positive sign for Australian exports of raw material to China. On a more fundamental level, we note the meeting of US President Biden and his Chinese counterpart Xi Jinping and should the meeting result in a thawing of the tensions of the two superpowers on a military and economic level we may see the Aussie getting some support. Furthermore, Australia’s wage price index also accelerated beyond market expectations for Q3, a sign that the Australian employment market may continue feeding inflationary pressures in the Australian economy. We expect Aussie traders now to turn their attention towards the release of October’s employment data during tomorrow’s Asian session. If the data shows a crack in the tightness of Australia’s labor market we may see the Aussie slipping.

AUD/USD jumped yesterday breaking the 0.6400 (S1) resistance line and continued higher to test the 0.6515 (R1) resistance level. We tend to maintain a bullish outlook for the pair given that the RSI indicator is slightly above the reading of 70, which on the one hand implies a strong bullish sentiment in the market, yet may also be warning that the pair has reached overbought levels and may be ripe for a correction lower. Should the bulls maintain control over the pair, we may see AUD/USD breaking the 0.6515 (R1) resistance line and aim for the 0.6620 (R2) resistance line. Should the bears take over we may see AUD/USD reversing course and breaking the 0.6400 (S1) support line, aiming for the 0.6285 (S2) support base.

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Today in the European session, we note the slowdown of the UK’s CPI rates for October which weakened the pound as it increased market expectations for the BoE to remain on hold. During the American session, we get Canada’s manufacturing sales rate for September. In tomorrow’s Asian session, we note Japan’s machinery orders rate for September and trade data for October.