US CPI rates beat market expectations

The US Core and Headline CPI rates for February came in higher than expected during yesterday’s American session. The higher-than-expected CPI rates could cause concern amongst market participants, as they imply persistent inflationary pressures in the US economy. Furthermore, the Headline CPI rates for February, not only came in higher than expected but accelerated, which could cause concern that the Fed may have to withhold cutting rates to early. Following the release, the greenback appears to have strengthened, yet the positive impact on the dollar appears to have been short-lived, as market expectations of the Fed potentially cutting rates in June, appear at the time of this report to have remained intact. Yet we note that the market’s currently expected 3 rate cuts by the Fed this year which appears to be in line with the Fed’s dot plot, which could weigh on the dollar. Over in Europe, ECB member Wunsch according to Bloomberg, implied that the bank may have to take a decision soon when referring to cutting intertest rates and that may not be “before so long”. Furthermore, ECB member Villeroy re-iterated the dovish sentiment emerging from ECB officials, having stated according to Bloomberg that there is a Broad consensus in the ECB that key interest rates should be lowered in the Spring. Should the dovish sentiment be re-iterated by ECB officials, it could weigh on the common currency. According to an FT headline, “Japanese workers secure biggest pay rise in three decades”, which appears to be aiding the BOJ’s implied requirements of an increase in real wages before potentially shifting their stance on the bank’s monetary policy, which could support the JPY.

USD/JPY appears to be moving in a sideways fashion. We switch our bearish outlook in favour of a sideways bias and supporting our case is the narrowing of the Bollinger bands implying low market volatility in addition to the RSI indicator below our chart which currently registers a figure near 50, also implying a neutral market sentiment. For our sideways bias to continue, we would like to see the pair remain confined between the 146.65 (S1) support level and the 148.40 (R1) resistance line. On the other hand, for a bearish outlook to occur, we would require a clear break below the 146.65 (S1) support level, with the next possible target for the bears being the 144.40 (S2) support base. Lastly, for a bullish outlook, we would require a clear break above the 148.40 (R1) resistance line, with the next possible target for the bulls being the 150.35 (R2) resistance ceiling.

XAU/USD despite failing to break above the 2182 (R1) resistance line, still appears to be moving in an upwards fashion from a macro-perspective. We maintain a bullish outlook for the commodity and supporting our case is the RSI indicator below our chart which now registers a figure of 70, implying a strong bullish market sentiment. Yet the Bollinger bands continue to widen, implying high market volatility.  Nonetheless, for our bullish outlook to continue, we would require a clear break above the 2182 (R1) resistance level, with the next possible target for the bulls being the 2230 (R2) resistance line. On the other hand, for a sideways bias, we would like to see the precious metal remain confined between the 2136 (S1) support level and the 2182 (R1) resistance line. Lastly, for a bearish outlook, we would require a clear break below the 2136 (S1) support level, with the next possible target for the bears being the 2077 (S2) support line.

Other highlights for the day:

Today in the European session, we note the release of the UK’s Preliminary GDP rates for January and the UK’s manufacturing output rate also for January, the Eurozone’s Industrial production rates for January and during the American session we note the US weekly crude oil inventories figure. On a monetary level, we note the speech by Riksbank First Deputy Governor Anna and the monthly meeting of the Eurozone’s Finance Ministers.

USD/JPY H4 Chart

Support: 146.55 (S1), 144.40 (S2), 141.90 (S3)

Resistance: 148.40 (R1), 150.35 (R2), 151.95 (R3)

XAU/USD Daily Chart

Support: 2136 (S1), 2077 (S2), 2035 (S3)

Resistance: 2182 (R1), 2230 (R2), 2277 (R3)

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