A relatively modest rise in the US inflation data encouraged bond-buying and pushed the yields lower yesterday. This supported risky assets and helped Nasdaq to close at a new all-time high. The core CPI came in at 0.3% (0.2% expected) while the headline number was confirmed at 0.6% (0.5% expected). Even though the rise was the biggest increase in almost nine years the market reaction shows that market participants were worried inflation might rise more wildly. The price of gold rallied 1.23% from yesterday’s low and Nasdaq Composite closed 1.05% higher. Major dollar rivals gained also against the USD.  By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.

The Fed Chair Jeremy Powell has said repeatedly that he expects any spikes in inflation to be transitory. Yields dropping lower has been a theme we have believed in (and communicated) for some time now. Yesterday’s move lower in yields was yet another confirmation that our view is correct. We expect to see further declines over the coming weeks in the US Treasury yields. This is likely to support risky assets (as it pressures the USD) in general but especially gold and technology stocks. 

There will, of course, be fluctuations in these markets and the yields alike but after such a long up move in yields and a downtrend in Treasury bonds, there are definite signs of a reversal process. We will keep on monitoring the bond market dynamics and report to our readers how we see these markets developing and how they are likely to impact other markets such as gold, oil and stocks.

RBNZ confirmed their official cash rate to be 0.25%, just as analysts had expected. Fed Chair Powell’s speech later on today will be the highlight of the day. Other important risk events include the ECB President Lagarde’s speech and the US crude oil inventories. For more details on macroeconomic releases see our economic calendar

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EURUSD has reached our upper confluence zone now that the CPI numbers weren’t as wild as expected and the yields dropping lower pressured the USD. The pair has reached SMA(50) and is approaching a key resistance level at 1.1992. This level is relatively near to the upper end of the bearish channel top. However, the current prevailing momentum is up at the time of writing this. The nearest key support level is at 1.1927.

EURNZD created a narrow body candle inside the upper confluence zone we have been focusing on lately. This bearish indication took the steam out of the uptrend and the pair has been dropping in today’s trading. This bearish development has brought the pair to 1.6849 support, a level that was enough to launch the latest rally that took the pair into our confluence zone. Violation of this support level could well in the cards now and would be likely to take the pair to our next confluence zone at 1.6706 -1.6750 (SMA 50, 23.6% retracement and a rising trendline).

USOIL is finally moving higher after languishing in a narrow range for several days. Upside has been gapped by the SMA(50) but today the price is breaking above the moving average. The price is approaching our confluence zone at 61.57 – 62.22 (38.2% Fibonacci retracement level and a recent reactionary high). If the price can push above this zone and maintain the levels above it, we have a range breakout that would indicate a move to 23.6% Fibonacci retracement level (64.00) region. A failure to break the level would create a lower reactionary high and indicate a move to the lower confluence zone (57.22 – 57.90) would be likely. This zone is created by a recent reactionary low and the 61.8% Fibonacci retracement level.

Yesterday AUDUSD bulls weren’t enticed by strong growth numbers in Chinese trade but today’s move higher shows what really is driving this pair at the moment. Yes, the answer is the US Treasury yields. The pair is trying to challenge a recent reactionary high while the next challenge lies fairly nearby. A confluence zone at 0.7699 – 0.7715 is only 0.25% away from the current market price. If the zone can be penetrated the next significant resistance level is at 0.7849 but a failure to challenge the zone successfully leaves the downside open to the nearest swing low at 0.7584.

Recent macroeconomic data releases

  • Canadian Employment Change 303.1K, 101.5K expected
  • Canadian Unemployment Rate 7.5%, 8.0% expected
  • New Zealand NZIER Business Confidence -13, -6 previous
  • Australian NAB Business Confidence 15, 18 previous
  • Chinese Trade Balance 88B, 330B expected
  • Chinese USD-Denominated Trade Balance 13.8 Bn, 52.0 Bn expected
  • US CPI 0.6%, 0.5% expected
  • US Core CPI 0.3%, 0.2% expected

Important macroeconomic data releases today

  • RBNZ Official Cash Rate 0.25%, 0.25% expected
  • ECB President Lagarde’s Speech
  • US Crude Oil Inventories
  • Fed Chair Powell’s Speech

You may access the times and dates in the economic calendar here.

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Janne Muta
Chief Market Analyst
TIOmarkets.com

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