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Daily market analysis

Market awaits US CPI data for this week

December 12, 2022

The DXY and the US equity market moved in an inverse correlation, the U.S. Michigan Consumer Sentiment and PPI released last Friday both showed a positive future for the U.S. Dollar, the greenback had little bounce that raised 0.11%, sits at $104.932, moreover, the December CPI report scheduled to release on Tuesday, might lead to further gains for US stocks the turning point for stock market of this week, the market expects inflation to cool down further and the annual CPI to drop to 7.3% from 7.7% and a drop of monthly CPI from 0.4% to 0.3%, both shows a bearish in the USD market.

The Dow Jones Industrial Average has dropped 0.9% to close at 33476.46. The S&P 500 dropped 0.73% to close at 3934.38. The tech-heavy Nasdaq Composite dropped 0.7% to close at 11004.62. The fall of the stock market was the reaction to the decline of the annual PPI, also Consumer sentiment indicated the bearish for the stock market. Treasury yields rose, U.S. 10-year treasury yield sits at around 3.567%. The policy-sensitive 2-year treasury yield sits at 4.33%.

According to last week, the headline CPI is expected to remain stable at 7.7%. While the core inflation could display a slight improvement to 6.4% from the former release of 6.3%. The inflationary pressures could display a surprise jump as labour demand remained extremely tight in November and the service sector is booming led by solid demand, S&P500 faced heat on Friday and is expected to remain precautionary ahead as a further rate hike by the Fed is going to escalate recession fears in the United States economy.

Main Pairs Movement

GBP/USD has failed to surpass the resistance of 1.23 and dropped to near 1.2250, the US Dollar index is failing to recapture the round-level resistance of 105.00 as investors have shifted to the sidelines amid a cautious market mood. On the United Kingdom front, the BOE is set to hike its interest rates further by 50 bps, the United Kingdom’s economy is in a recession led by an extreme debt crisis, weak economic prospects, and an absence of exhaustion in inflation.

EUR/USD remains in a bullish structure with a focus on a break above 1.0600, before that, it has to break 1.055 first, overall the US data is firmer than Europe, which in turn could help the EUR/USD pair bears to keep the reins. However, major attention will be given to the ECB versus Fed drama for clear directions.

Gold price is aiming to recapture a five-month high at around $1,800.00 as the risk-on profile is regaining traction. The precious metal is aiming to extend its recovery above the round-level resistance of $1,800.00 as the risk-appetite theme has regained strength. Besides, investors have shifted their focus toward the release of the US Consumer Price Index (CPI), which is scheduled for Tuesday

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD has traded mostly sideways on the last trading day of the week. The Euro found bidding at the start of the European trading session but soon came under selling pressure as the U.S. released its PPI data, which came in above market expectations. The hotter-than-expected PPI figure buoyed the Greenback but bidding did not sustain into the American trading session; on the other hand, U.S. equities continued to fall after the impact of the hotter-than-expected PPI figure and closed the week on a low note. On the economic docket, the U.S. FOMC interest rate decision will be announced during the late U.S. trading session on the 14th, while the ECB interest rate decision will be announced at the start of the American trading session on the 15th.

On the technical side, EURUSD has attempted to break above our previously estimated resistance level of 1.0595 but was ultimately successful. EURUSD continues to hover slightly below that level. The support level for the pair remains at around the 1.031 price region. RSI for the pair sits at 53.98, as of writing. On the four-hour chart, EURUSD currently trades above its 50, 100, and 200-day SMA.

Resistance: 1.06

Support: 1.031, 1.0265

GBPUSD (4-Hour Chart)

Cable edged higher on the last trading day of the week. The British Pound was able to gain against the rising Dollar due to a major reformation proposed by the British government on Friday. The new reformation, the Edinburgh Reforms,  is set to relax some of the stringent restrictions the U.K. financial sector had to follow under EU rules. The new reformation is expected to spur growth and competitiveness in the U.K. financial sector and hopefully attract foreign investments. However, the reformation has also attracted criticism, which reminded the public of the catastrophe, that happened more than 15 years ago, triggered by unbalanced favouring of the financial sector. On the economic docket, the Bank of England will announce its interest rate decision during the late European trading session on the 15th, while the Fed’s interest rate decision will be announced during the late American trading session on the 14th.

On the technical side, GBPUSD currently trades below our previously estimated resistance level of 1.234. The short-term support level for the pair remains at 1.177. The 23.6% Fibonacci retracement level of 1.2065 indicates another near-term support level. RSI for the pair sits at 62.28, as of writing. On the four-hour chart, GBPUSD currently trades above its 50, 100, and 200-day SMA.

Resistance: 1.2400, 1.2600

Support: 1.2154, 1.1927, 1.1765

XAUUSD (4-Hour Chart)

Gold continued its upward trend on the last trading day of the week. The precious metal is entering its third straight day of gains as the Dollar continues to retreat ahead of the FOMC interest rate decision. The yellow metal closed out the week with modest gains and consolidated around the $1800 per ounce price level. Market participants will now turn their attention to a heavily packed economic data release week with releases from the Fed, BoE and ECB. A spike in volatility for Gold is expected around the time of the key interest rate decisions by these three major central banks. Gold prices were able to advance despite negative signs of higher inflation still slipping out at key economic data such as China’s PPI and the U.S. PPI, indicating higher price pressure for November. Geopolitical tensions around the globe and recessionary fears have both acted as tailwinds for the yellow metal.

On the technical side, Gold continues to hover slightly below our previously estimated resistance level of $1800 per ounce. The weaker Dollar has allowed Gold to break through this key psychological level a couple of times on Friday, but the yellow metal fails to consolidate above $1800 per ounce this week. RSI for the pair sits at 56.54, as of writing. On the four-hour chart, XAUUSD currently trades above its 50, 100, and 200-day SMA.

Resistance: $1810

Support: $1766, $1735

Economic Data

CurrencyDataTime (GMT + 8)Forecast
GBPGDP(QoQ)15:00-0.2%
GBPManufacturing Production (Oct)15:000.1%