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Lackluster reaction to the CPI in stocks

  • US CPI was in line with expectations
  • Stocks react sluggishly
  • Today’s main risk events: Inflation expectations and consumer sentiment
DJH8 01 13

DJ rally has escalated with the market moving higher in a steeper angle. The steeper uptrend remains in force above the 33 684 level I talked about yesterday. Below the level, the market could trade down to 33 480. Note that the channel high and the 34 396 resistance level create a resistance area at 34 396 – 34 550.

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The reaction to the CPI number was positive but not overly so. The market gained only 0.6% after the release and has since given back the majority of the small gain. We could argue that this is understandable as the yearly headline figure was in line with expectations (6.5%, vs. 6.5% expected) but all in all it increases the risk of market correcting lower short term. Today’s main risk events are the consumer sentiment and inflation expectations from the US.

DE30 H4 01 13

Dax remains stronger than DJ and NAS

DAX is still in an uptrend and remains so until the 14 795 level is broken. Then we might see a move to the 14 500 – 14 600 range. The nearest key support level is at 14 945. If the level is not defended then the market probably tests the channel low at 14 860 or so.

In terms of reaction to the US CPI number, the story with DAX is similar. The market gained only 0.7% after the CPI release and has since then drifted back so that roughly half of the gain has been lost. This obviously is a development that’s not telling us where the market will be in 2 months’ time but it serves as a reminder that the markets have risen quite a bit, meaning they have priced in a lot of the CPI decline.

Such a weak reaction increases the risk of a short-term correction. However, if the market keeps on bouncing higher from supports and remains stronger than the US indices then there’s no other option than going with the flow. Fighting the market only leads to losses.

XAUUSDH4 01 13

Gold trends higher

Gold trends higher and remains in an uptrend above the 1865 key support level. Below the level, the market could trade down to 1840 or so. The nearest support level to pay attention to in gold is the 4h swing high at 1886. Below 1886, the bulls are likely to focus on the channel low (currently at 1876). Yields have been falling lately which has helped the gold market to rally strongly.

It’s interesting that in December there was a two-week rally in yields (T-Bonds traded lower) but gold kept on edging higher. You might remember my analysis from the time in which we took a bullish view on gold.  This is a bullish sign but as always, I will be looking for the market to confirm the idea. If gold starts to break supports my bullishness goes out the window and I look to trade short.

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GBPUSDH8 01 13

GBPUSD remains bullish above 1.2100

GBPUSD consolidation was resolved to the upside as I expected. The market remains bullish above 1.2100. Below the level, the market could move down to 1.1960  The lower end of the consolidation formation (1.2100) provided a great level to be a buyer as the market rallied over 140 pips from the level. The monthly change in the UK GDP came in at 0.1% (-0.2% expected, 0.5% previous) just momentums ago but this failed to move the market significantly.

The Next Main Risk Events

  • USD Prelim UoM Consumer Sentiment
  • USD Prelim UoM Inflation Expectations

For more information and details see the TIOmarkets economic calendar.  

Trade Safe!

Janne Muta
Chief Market Analyst

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