Market Report: U.S. Dollar's Short-Term Weakness Post CPI; Gold Shines
Eighty Eight Research | Jan 15, 2022 02:10AM ET
By Shiven Moodley h2 Last Week/h2
The markets remained tense as investors awaited the announcement of U.S CPI data on Wednesday. Headline inflation was at its highest level since 1982, at 7%, and core inflation was up 0.1 percent more than expected, further weakening the dollar across both major and minor counterparts.
Fed Governors were unanimous in their support for a March rate hike; but, the dollar did not gain from the hawkish tone and continued to fall. Across the Pacific, China generated a trade surplus of USD 676.4 billion in 2021 ahead of the GDP data in the coming week.
We should expect thin liquidity ahead of Monday's trading session as the United States observes Martin Luther King Jr. Day. However, data released this week will include China GDP and EU statistics, CPI data from the UK, Germany, and South Africa, employment figures from Australia and New Zealand, a monetary statement from the Bank of Japan, job numbers from the US, and retail sales figures from major economies.
We expect China to reach the predicted target of 3.6 percent, down from the previous 4.9 percent due to the economy's rising Omicron cases. While the dollar has undergone a short-term negative move, there will be a correction in the near term as we approach the Fed's Jan. 26 meeting, with a 25bps raise currently projected to be 97 percent likely.
h2 Technical Analysis/h2 h3 Dollar Index/h3
The dollar index broke over its 135-day trendline as a result of rising inflation and a risk-on attitude among investors. The RSI is approaching oversold territory, while the MACD suggests that price momentum is skewed downward. The standard deviation has remained constant at 0.475. As a result, we may see more short-term weakness before a market adjustment.
The yellow metal moves in the opposite direction of the dollar and has had its best week since November 2021. From December 2021, gold has ranged from a Fibonacci price level of $1767/oz to $1830/oz. While momentum is favorable and the RSI is neutral, gold may continue in the range until a new catalyst enters the market.
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