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Nothing new from the Fed – Focus on the CPI!

  • DJ tested the support and rallied
  • Nasdaq turns medium term bullish
  • Higher than expected CPI, but no strong rally in AUDUSD

After raising the benchmark short-term rate quite aggressively in 2022 the Fed is signalling that they intend to lift the rate above 5% this year and keep it there for a longer period of time. While Powell’s final comments yesterday didn’t deal with the central bank’s policy the Fed governor Michelle Bowman said the Fed needs to continue hiking but the bank would monitor the incoming data to see for how long and in what increment the Fed should lift the rates. This lack of new hawkishness helped the stocks to rally yesterday as everything the Fed officials said was priced in already.

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DJH8 0111

The test was successful

DJ remains bullish above the 33 341 level after successfully testing it. Below the level the market is likely to move back to 32900. If the CPI tomorrow doesn’t come in higher than expected the US stock markets are more likely to remain bullish. Keep an eye on how the market responds to the CPI print tomorrow and to the nearest key S&R levels if and when they are tested.

All in all, the market has broken out of a bear channel and a consolidation formation and has tested the channel high before rallying so technically the market looks good for the short term. However, as always, this could change with the inflation numbers coming higher than expected.

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Nasdaq turns medium turn bullish

Nasdaq has created a higher weekly low which makes the market medium-term bullish above the 10 660 level. Below the level, the market probably tests the 10 430 low again. The nearest key resistance level is at 11 500. The recent strength in Nasdaq is caused by the lower inflation numbers and the rally in bonds (yields drop). Basically, the bond traders are betting that the Fed can’t keep on hiking the rates much longer and are now pricing in the change in the Fed policy. This in turn brings the cost of borrowing down helping the tech stock investors to turn bullish once again. 

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DAX – Relative strength continues

DAX remains strong above the 14 600 level in the 4h chart. If the level breaks we should expect to see a move down to 14 500. If the US inflation doesn’t spoil the party then we should see more strength in DAX. The market has been the one with relative strength so if Nasdaq and Dow remain bullish DAX is likely to gain.

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AUDUSD trades near to a December high

AUDUSD is trying to push higher after the CPI came in at 7.3% y/y (6.9% previous). The market expectation was a notch lower, at 7.2%. AUDUSD is trading near the December high which (together with the looming US CPI release) explains why the pair has managed to push higher by only 0.5% before giving back a bit. The market is upwardly biased but if the 0.6860 support breaks the market probably trades down to 0.6800 or so.

The Next Main Risk Events

  • AUD CPI 
  • USD 10-y Bond Auction
  • USD CPI 
  • USD Unemployment Claims
  • GBP GDP 
  • 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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