Highest November US CPI since June 1982
The November US CPI was going to be this week’s highlight, and it didn’t disappoint. The stock was 6.8% year-on-year versus 6.2% year-on-year in October, in line with expectations. It was the highest inflation impression since June 1982, when it was 6.8%!
The core CPI, which excludes food and energy, was also higher, at 4.9% yoy from 4.6% yoy in October. The Michigan Consumer Sentiment preliminary for December was also released today. The component of 1-year inflation expectations was 4.9%, unchanged from November. The component of 5-year inflation expectations was 3%, also unchanged from November. The good news is that these numbers have not increased. The bad news is that the Fed is targeting 2% inflation!
Logic may suggest that the US dollar should bid on the release of these data impressions. However, over the 15-minute period, the US dollar index (DXY) decreased when the data was released:
US dollar index chart (DXY) 15 minutes
Was this a “buy the rumor, sell the news” transaction today with expectations “online” ahead of the FOMC meeting next week. The DXY Index has seen a sharp rise since hitting a double low earlier in the year near 89.20 / 89.50. The goal for the double bottom is close to 97.72. The DXY index recently hit a high of 96.94 on November 24, therefore there is still room to go up if the price is going to move towards the target. However, the price had a false break above the upward sloping channel the index has been in since the May lows. Often times when the price fails to break out on one side of a channel, it will move to test the other side of the channel, which is currently near 94.65. First support is just above the 50 day moving average near 94.90. Strong horizontal support below the trendline is at 93.35.
Daily U.S. Dollar Index (DXY) Chart
At the same time, the DXY index is approaching the top of a symmetrical triangle and the 50% retracement of the passage from March 2020 highs to January lows. Price action would suggest a higher breakout out of the triangle. If the price breaks 96.50, the first resistance is at the November 24 high at 96.94, then the 61.8% Fibonacci retracement of the aforementioned period at 97.72 (also the target for the double bottom) . The horizontal resistance above is at 98.17.
Now that all notable inflation data has been released ahead of next week’s FOMC meeting, the direction of the US dollar index may depend on their decision. If the FOMC accelerates its reduction in bond purchases, the US dollar could advance on forex. If they maintain the current pace of bond buying, the DXY index could retreat. Until then, watch for volatility as funds may look to take profit off the table ahead of the meeting and year-end (which may have happened with the CPI data release today). hui)!
By Joe Perry, Forex.com » Official site
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell forex foreign exchange contracts or CFDs. Although the information contained in this document has been taken from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may arise from the fact that someone relies on such information.
