Monthly CPI Comes In at 0%, Stirs Up the Markets

 | Aug 11, 2022 07:47AM ET

Within the first two days of the week, investors experienced very little volatility as there was little direction in the market. It made it slightly tricky for traders looking to trade trends.

However, as mentioned earlier in the week, most investors had held back trades until the market obtained further clarity on inflation. The CPI increased from 0.3% to 1.0% and then a whopping 1.3% every month.

It was expected that the inflation rate would be much lower this month, as it is unusual for the U.S. economy to continue seeing such high rates month over month.

The inflation rate was predicted to have increased by 0.2% - 0.3%, but the figure came in at 0.0%. This CPI monthly figure is the lowest we have seen in almost two years.

Also, all market participants have noticed that fuel prices, which weigh heavily on inflation, have decreased significantly over the past month.

The U.S. dollar declined against most major currencies immediately after the release. Its decline averaged around 1.30% within only 3 hours. The stock market also saw strong price movement, but, unlike the USD, it was positive.

The NASDAQ increased by 2.85% and the S&P 500 by 2.13%. The NASDAQ is now at its highest since May 1.

Oil prices saw mixed movement but remained within the latest price range. At first, the bears held the upper hand, dropping the price to $87.14 per barrel. Later, though, that level was rejected, and it rallied quickly.

Overall, the price ended the day higher and is currently hovering at $91.19 but continues to show signs of bearish volatility.

h2 USD/JPY - Technical View/h2

As with most pairs, the USD/JPY saw a strong breakout after the release. However, the USD/JPY had virtually seen no volatility throughout Monday, Tuesday, and Wednesday. Other currency pairs experienced volatility but not much direction.

The market participants were waiting for further clarification on inflation before placing their positions. 

The U.S. dollar declined by 2.19% within the first few hours of the CPI release. The significant decline had increased the level of demand. As sellers started closing their profiting positions, the price moved into a retracement.

The retracement measures 31% of the previous price movement and has formed two higher waves, with the price lows also remaining higher. Nonetheless, the price remains very low and is potentially exposed to more sellers.