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The market awaits US CPI inflation data

November 10, 2022

US stocks tumbled heavily on Wednesday, failing to preserve their upside traction and witnessing heavy selling pressure as renewed selling in currencies and disappointing earnings weighed on risk sentiment ahead of a key US inflation report.

Global equity markets sensed an intense sell-off amid headwinds of the US mid-term elections outcome and upside risks from the inflationary pressures. Investors’ attention now shifts toward the closely watched US inflation report due Thursday after midterm elections failed to deliver a Republican sweep.

The headline US CPI is expected to decline to 8.0% meanwhile providing clues on the path of Federal Reserve policy tightening. on the Eurozone front, the European Central Bank (ECB) has conducted a survey of consumer expectations for inflation, which indicated that Consumers still see inflation at 3% in 3 years and 5.1% over the next 12 months. The higher inflation is hurting the households’ sentiment.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined lower on Wednesday as the S&P 500 ended its three-day rally and Bitcoin dropped below $16,000 to a level not seen since 2020 amid a deepening selloff in currencies. The S&P 500 was down 2.1% daily and the Dow Jones Industrial Average also dropped lower with a 1.9% loss for the day. All eleven sectors in S&P 500 stayed in negative territory as the Energy sector and the Consumer Discretionary sector is the worst performing among all groups, losing 4.88% and 3.12%, respectively. The Nasdaq 100 meanwhile slumped the most with a 2.4% loss on Wednesday and the MSCI World index was down 1.6% for the day.

Main Pairs Movement

The US dollar advanced higher on Wednesday, regaining upside momentum and rebounded firmly to the 110.50 area during the US trading session amid an improvement in safe-haven’s appeal. However, the 10-year US Treasury yields witnessed a steel fall below 4.10% as odds are favouring a rate hike of 50 basis points (bps) by the Federal Reserve (Fed) in its December monetary policy meeting. On Thursday, the US inflation figures will remain in the spotlight.

GBP/USD was sharply down on Wednesday with a 1.61% loss after the cable extended its intra-day slide to the 1.1340 mark amid the market’s anxiety ahead of the US inflation report. On the UK front, Prime Minister (PM) Rishi Sunak will become the first British prime minister in 15 years to attend the British-Irish Council summit on Thursday. Meanwhile, EUR/USD remained under pressure and retreated towards the 1.0000 mark amid a stronger US dollar across the board. The pair was down almost 0.63% for the day.

Gold dropped with a 0.33% loss for the day after surrendering its entire Wednesday’s gains near the $1,714 mark with the risk sentiment turning sour heading to the close, as the recovering US dollar undermined the precious metal. Meanwhile, WTI Oil was sharply down with a 3.46% loss for the day amid rising odds for the higher peak of the Federal Reserve (Fed)’s terminal rate.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD remains on the back foot and trades below 1.0050 in the early American session, as the US Dollar benefits from safe-haven flows mid-week with investors awaiting the outcome of the US Midterm Elections. The results of the midterm elections, which are yet to be completed, are showing Democrats doing better than anticipated, taking one more seat in the Senate, lost by the GOP. However, the ruling party lost two seats in the House, securing so far 172 vs 199 for the opposition. On the other hand, the stock market edged lower and struggled for a clear direction. Most European indexes trade in red, although losses are limited. Meanwhile, Wall Street is set to open little changed from Tuesday’s closing levels. Apart from this, investors were keeping their eyes on the US Consumer Price Index to be out on Thursday. Inflation is expected to have risen at an annual pace of 8% in October, easing from 8.2% in the previous month.

From the technical perspective, the four-hour scale RSI indicator edged lower to 61 figured as of writing, suggesting that the positive traction has turned weaker. As for the Bollinger Bands, the pair was pricing in the upper area and found support near the 20-period moving average with a smaller size between upper and lower bands, signalling that the price has not found a clear direction and tends to put into sideway in the near-term.

Resistance:  1.0095, 1.0198

Support: 0.9996, 0.9852, 0.9730

GBPUSD (4-Hour Chart)

The GBPUSD extended its losses and dropped to a fresh daily low below 1.1400 in the second half of the day on Wednesday. The risk-averse market environment provides a boost to the safe-haven US dollar as investors await the outcome of the US Midterm Elections. Investors seem to be staying on the sidelines while awaiting the outcome of the US Midterm Elections. The latest news has shown better-than-expected results for the Democrats as the “red wave” announced by the media has not crystallized, and according to Associated Press, Democrats and Republicans have 46 and 47 Senate seats, respectively, with 5 seats remaining out of 35 called up for election. The final results, however, might still take some time, and key issues like the control of Congress and Biden’s next year agenda are still uncertain. Apart from this, the Consumer Price Index data, due on Thursday, might provide further insight into the size of the Federal Reserve’s next interest rate hike. Any surprise in these readings might boost Dollar volatility.

From the technical perspective, the four-hour scale RSI indicator slid to 44 figures as of writing, suggesting that the pair was surrounded by bearish transactions. As for the Bollinger Bands, the pounds were priced below the 20-moving average and the size between upper and lower bands get smaller, which is a signal that the pair was more favoured to the downside path.

Resistance: 1.1438, 1.1623

Support: 1.1146, 1.0953, 1.0797

XAUUSD (4-Hour Chart)

Gold edged lower for the day and was trying to stabilise above the $1710 mark as of writing, as the American Dollar regather strength during the US trading session as investors turn cautious amid growing worries about a deeper global economic downturn and uncertainty over the release of US Consumer Price Index and the outcome of the US Midterm Election. The US Dollar attracts some buying and moves away from its lowest level since September 20 touched the previous day, which, in turn, is seen as a key factor weighing on the dollar-denominated gold. Despite rising bets for a less aggressive policy tightening by the Fed, the markets are still pricing in the possibility of at least a 50 bps rate hike in December. This remains supportive of the elevated US Treasury bond yield and offers some support for the greenback. That said, the cautious market mood underpinned the safe-haven gold and might limit further losses, at least for the time being.

From the technical perspective, the four-hour scale RSI indicator slightly fell back to 64 figured, suggesting that the strong bullish momentum has been softer. As for the Bollinger Bands, the yellow metal was pricing between the upper band and 20-period moving average and put into sideway, which is a signal that the upside tendency is mild and weak. Therefore, if there are any surprising events, the direction would easily change downwardly.

Resistance: 1715, 1725, 1745

Support: 1675, 1641, 1615

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDCore CPI (MoM) (Oct)21:300.5%
USDCPI (YoY) (Oct)21:308.0%
USDCPI (MoM) (Oct)21:300.6%
USDInitial Jobless Claims21:30220K