Let’s first address the highlight for this week, the inflation data from the U.S.
The print was 7.7% YoY, compared to a forecast of 7.9% and a previous reading of 8.2%, a welcoming sign that inflation is starting to cool which led to a change in market perceptions on the Fed’s next moves.
Most market participants are shifting towards a 50bps rate hike instead of 75bps for the next FOMC meeting as we are pondering whether the slowdown in inflation will give the Fed permission to not raise rates as aggressively.
We witness a strong and widespread impact of a lower-than-expected U.S. inflation rate across the financial markets, including the stock markets, currencies, commodities, and bonds.
All 3 major US Stock market indexes -the Dow, Nasdaq 100, and S&P 500 all saw gains at the market’s closing bell—3.69%, 7.49%, and 5.53%, respectively.
The Nasdaq index jumped and broke its bearish trendline with ease and it seems like 11680 will not be able to withstand the strong bullish momentum. However, since today is a U.S. bank holiday, there may be some nice price gaps next week.
The Dollar lost its grip against the Yen and “declined sharply” is an understatement. The pair lost as much as 600 pips even before the Asian session started. On the technical front, a breakout form a triangle formation added more bearish confluence to the pair. It is currently testing 140.34 previous low, and a break below that level could mean further downside toward 138.90 area. However, we are not as bearish on USDJPY for the following reasons:
- It has dropped significantly in a short span of time, leading to the pair being heavily oversold
- The interest rate differentials are still there. This could be a short-term reaction to the inflation news and a dollar’s retracement
Gold performed exceptionally well this week, partly due to the dollar’s weakness and a boost from the CPI data. It gained as much as 4.91% or $82 at the time of writing. After breaking through multiple resistance zones, it is now testing $1765 and a break of this zone will pave the way to further upside, targeting the $1800 whole level.
Financial Market Analyst
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