USD dropped lower and US equity markets rallied the most in 2+ years as lower-than-expected CPI re-fueled the expectations of a Fed pivot. Equities, gold, oil and the dollar counterparts are bullish and trending higher at the time of writing this. DJ is trending higher in the 8h chart and stays bullish above the bull channel low (currently at 32775). The nearest key support levels in this timeframe are 33073 and 33358. The next major resistance level is a swing high (at 34285) created in August.
After the US CPI came in lower than expected DJ took off pretty fast. The market moved over 500 index points in the first minute but that wasn’t all. DJ has now rallied about 800 index points after that initial move. This shows the potential in a market that has to adjust to new information. Investors had priced in a 0.3% contraction in the annual CPI but a 0.5% dip wasn’t in the prices and caused a sizeable rally.
Let’s think about the trading potential here. If someone risked only $1 per index point and went long after the initial 500-point move had taken place there’d be an open profit of roughly $800 (at the time of writing this).
Obviously, there’s always the risk that the market reacts lower and stops you out. But there are ways to mitigate the risks though. Firstly, if the maximum risk in the trade is not creating too big of a risk to your trading account then it’s fine to get stopped out. That’s part of the plan then.
Second, the risk of a stop-out can be decreased by placing the stop far enough from your entry. You might want to use the ATR indicator to measure the most recent volatility in the timeframe you trade and then use the ATR value to decide how far from the entry level the stop should be placed.
Another factor setting the odds in your favour in markets like DJ yesterday (and this is important) is the very fact that the market has to price in a future that’s likely to be different to the one envisioned previously with different fundamental projections. This is when traders and investors tend to continue pushing prices in the direction of the prevailing momentum. It takes time to price in the new future scenarios and this gives you and me an opportunity to get on board and enjoy the ride!
EURUSD rallied after an initial reaction to the downside and is now trading above the bull channel high. The downtrend is now clearly reversed and the market is trending higher. The nearest key support level in the daily timeframe is at 1.0088 while the nearest important resistance level is the August 10th high at 1.0368.
Gold took off really quickly as algorithmic trading models reacted super fast to the CPI number being lower than expected. Now gold has broken out of the sideways range I have been writing about over the last two weeks so gold is bullish above the range high (1730). The nearest key support levels are 1715 and 1730 while the next important resistance level is at 1800.
USOIL trades higher after yesterday’s momentum shift. USOIL is bullish above yesterday’s low of 84.04 and is likely to move to 89.50 (T1) above it. This is my intraday target for today. If the 84 level is violated then the market is likely to move to 82.60 or so.
The Next Main Risk Events
- EUR EU Economic Forecasts
- CHF SNB Chairman Jordan Speaks
- USD Prelim UoM Consumer Sentiment
- USD Prelim UoM Inflation Expectations
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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