Dollar Bolsters By Upbeat CPI

* The U.S. CPI came higher than the market consensus, remaining above 3%, suggesting that the Fed may be extra cautious in amending its monetary policy.

* Japan is optimistic about maintaining a healthy wage growth, fueling optimism about BoJ’s March rate hike.

*U.S. equity markets edge higher despite strong CPI led by large tech counters, namely Oracle and Nvidia.

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Fundamental Overview

The latest U.S. Consumer Price Index (CPI) data, revealing a year-over-year increase of 3.2%, has introduced a notable paradigm shift in market sentiment. This data hints at a potentially more cautious approach by the Federal Reserve regarding interest rate cuts, signalling the likelihood of an extended period of economic pressure that might defer the expected easing of monetary policy. Curiously, despite concerns about inflation and the possibility of the Fed maintaining high-interest rates at its upcoming meeting, U.S. equity markets responded positively, closing higher and instilling renewed confidence among investors.

In contrast, gold, often considered a hedge against inflation and currency devaluation, relinquished its bullish stance, witnessing a decline of more than 1% in the last session. This retracement can be attributed to the post-CPI strengthening of the dollar. Meanwhile, oil prices remained below the $78 threshold, underscoring a cautious stance in the commodities market influenced by fluctuating demand forecasts and persistent geopolitical uncertainties.

In Japan, Toyota Motor’s expressed willingness to fully meet wage hike demands has sparked speculation about a potential shift in the Bank of Japan’s (BoJ) policy stance. The proactive response of Japan’s largest automaker to increased labour costs implies broader economic confidence and hints at inflationary pressures. This dynamic has the potential to prompt the BoJ to reconsider its longstanding accommodative monetary policy. 

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Current rate hike bets on 20th March Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (95%) VS -25 bps (5%)  

Market Overview

(MT4 System Time)

Source: MQL5 

Economic Calendar

(MT4 System Time)

Source: MQL5 

Market Movements

DOLLAR_INDX, H4

The Dollar Index surged post-release of strong US inflation data, indicating persistent inflationary pressures that may complicate Federal Reserve rate decisions. February’s consumer price growth exceeded expectations, with headline US consumer prices rising by 3.2% annually, surpassing forecasts of 3.1%. Similarly, core CPI data climbed to 3.8%, exceeding economists’ projections at 3.7%, as per the US Bureau of Labor Statistics. 

Currently, the Dollar Index is trading higher, testing resistance levels. MACD shows increasing bullish momentum, while RSI at 45 suggests potential for extended gains post-breakout, as it rebounded sharply from oversold territory.

Resistance levels: 102.90, 103.70

Support levels: 102.10, 101.35

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XAU/USD, H4

Gold prices experienced a notable decline amidst an optimistic US inflation report and rising US Treasury yields, as investors responded to concerns about potential hikes in interest rates. This prompted a shift away from non-yield assets like gold. Meanwhile, slight increases were observed in yields on the 2-year and 10-year Treasury bonds. Investors are advised to closely monitor forthcoming US economic data releases and statements from the Federal Reserve for further insights and potential trading signals.

Currently, gold prices are trading lower, testing the support level. The Moving Average Convergence Divergence (MACD) indicates a decrease in bullish momentum, while the Relative Strength Index (RSI) stands at 73, suggesting a possibility of the commodity entering overbought territory.

Resistance levels: 2235.00, 2350.00

Support levels: 2150.00, 2080.00

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CL OIL, H4

Oil prices have demonstrated a degree of stability amidst mixed market sentiment. The US Energy Information Administration (EIA) recently raised its 2024 domestic oil output growth forecast, potentially indicating an uptick in supply levels. Conversely, OPEC maintained its optimistic forecast for robust global oil demand growth in 2024 and 2025, alongside an upward revision in economic growth projections. 

Currently, oil prices are holding steady as they approach a significant resistance level. However, both the Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI) indicators are hovering near the midline, suggesting a lack of significant catalysts for a breakout. 

Resistance level: 78.00, 80.20

Support level: 75.95, 73.45