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Be ready to trade the US CPI release!

DAX chart 09 13

DAX – Yesterday was another very strong day for the German stock market. Readers might remember me suggesting the market would rally if the ECB hiked by 0.75bp or less. This is exactly what happened and DAX took off big time! The sentiment has supported the US markets too and we’ve enjoyed a nice bull run in stocks on both sides of the Atlantic. Technically DAX is trending higher and stays bullish above 13150 but today seems to be quiet due to traders waiting for the US CPI numbers. Above 13150, I look for long signals and expect the market eventually rally to the 13600 – 13650 range. Below the level, DAX could retrace back to 13040. The nearest key intraday levels in DAX are 13269, 13345 and 13373. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

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NAS chart 09 13

NAS – Nasdaq rallied my second target level 12721 and now the index is right below a key resistance level of 12805. The level is a swing point from August and will be a test for the strength and commitment of the bulls in not only the technology index but also in DJ and DAX. In August I wrote about how Nasdaq often leads the Dow and said at the time this relationship was indicating market weakness. DJ corrected over 8% after my report. So in practical terms, this means that, if Nasdaq now keeps on pushing higher the other indices are likely to follow it and if it starts to get weaker at this resistance then we need to start questioning the rally in the other indices too. The nearest key price levels are 12570, 12732 and 12805

Gold chart 09 13

Gold rallied once again a bit but managed to create a new higher high. At the time of writing this, gold is trading near a minor support level (1720). If the bulls can keep on creating higher lows we should see gold making higher highs too. However, the US CPI report is scheduled for today which could mean we don’t get strong moves before the report is out. The nearest key price levels for gold are 1711, 1720 and 1735.

Macro Drivers for the USD 

As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Federal ReserveFed hiked the target range again by 75bps (to 2.25%-2.5%). This was the fourth consecutive rate hike. The rate hike was in line with analyst forecasts. The Fed noted that ongoing increases in the target range will be appropriate but the next decisions will be data-dependent.
YieldsThe 10-week range in the US 10-year treasury yield has been from 2.516% to 3.498%. 
EmploymentThe US economy added 258 thousand new jobs. June number was revised from 390K to +384K and the average hourly earnings increased 0.5% (month over month) vs 0.3% predicted by the analysts. Such strong growth in employment and earnings reminds us how strong the US economy still is. 
InflationThe US inflation rate dropped more than expected. The July reading (YoY) came in at 8.5% after a 40-year high of 9.1% prior. Analyst forecasts had put the number at 8.7%. The cost of energy rose 32.9% (vs. 41.6% in June). Lower cost of petrol (44% vs 59.9%), fuel oil (75.6% vs 98.5%) and natural gas (30.5% vs 38.4%) contributed to the decline. The cost of electricity however increased by 15.2%. Food inflation however increased by 10.9% vs 10.4% prior. 

 The Next Main Risk Events

  • USD CPI  and core CPI  
  • GBP CPI 
  • USD PPI  and core PPI

For more information and details see the TIOmarkets economic calendar here

Trade Safe!

Janne Muta
Chief Market Analyst

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