Equities rebound drives USD lower after huge CPI data

How Do We Make Money Today?

WOW is the only word for it! What a calamity the moves were after the US CPI data was released. False Breaks across the board!

There was a load of activity in the markets so let me give you a full recap and then we’ll focus on where the cash is today.

US CPI release – M/M +0.5% vs +0.3% forecast, Y/Y 2.1% vs 1.9% forecast

The US CPI numbers defintiely put the FED on immediate interest rate hiking watch. But the crazy retail sales data led to a crazy reversal in the short term and chopped up loads of traders.

Here it is blow for blow

The USD fell on Wednesday, as equity markets rebounded quickly following a stronger-than-expected inflation data report.

The announcement that the U.S. core Consumer Price Index posted its biggest gain in a year raised expectations that price pressures may accelerate, prompting a faster pace of interest rate increases from the Federal Reserve. The possibility that the Fed would clamp down on inflation initially drove up the dollar index.

But the DXY quickly fell to a low of 89.23, as the equity market recovered from earlier losses and Treasury bond yields remained range-bound.

Just when traders thought it was all over the DXY had another run to the downside hitting a low of 88.95 just as US Treasuries hit a high of 2.9204…..WOW!

The risk-off trade – that is, the sale of riskier currencies in emerging markets and the Australian and Canadian dollars in favour of safer havens – that traders put on immediately after the CPI release have come bouncing back, helped by equity resilience.

After opening lower at the bell, the S&P 500 rose to 2,686.9, its highest since Feb. 8. The Dow Jones Industrial Average followed the same trend, opening lower before rising to 1% above its last close.

The USD limited rise was definitely related to a surprise decline in U.S. retail sales in January.

Retail sales came out -0.3% M/M versus forecast of +0.2%. That is a shocker and suggests a potential slowdown in upcoming CPI data.

So the equity markets rule the roost and the ensuing bounce on the majors have been extreme because the market got itself very long USD straight after the CPI release. And for very good reason mind you.

But just like the Asian session yesterday the equity markets are driving the currencies.

It’s been a bit of a blood bath on the street with many traders getting taken out as the USD corrected the initial moves. Those that followed the equity markets lead did extremely well.

I wouldn’t be surprised to see the equity markets correct tomorrow as the US Treasuries suggest higher rates are just around the corner & that should mean a higher USD!

Where’s the Cash today?

Trading for the remainder of the week will be equity driven without a shadow of doubt.

It will start in the Asian session with the Nikkei which is scheduled to open up +280. That’s our ‘ground zero’ for the start of the day.

We also have the potentially high impacting Japanese Machinery Orders & that could be the big lead for the Nikkei. It’s released 10 minutes before the Japanese equity market opens so watch it closely.

All of the majors are ‘massively’ overbought so I expect a correction on all of them over the next 24 hours, if not sooner.

If you’re looking to get into a trade make sure you’ve got some technicals behind you because it could get very loose otherwise.

The Aussie employment data is going to be an extremely lively event. Especially if the data is weak!

The YEN crosses are looking particularly gorgeous today so check them out. The USD move across the board has limited to their recent moves but that could all change at the blink of an eye.

There’s not a lot in the European session as far as economic data but you can be sure the equity markets will be pretty active.

The North American session should light up again with a number of high impacting releases due: PPI, Industrial Production, NY FED Manufacturing & Initial Jobless Claims.

You’ve got to be thinking there’s no way the US equity market can hold up if these numbers are strong.

We could potentially see a full correction of the moves we just had on the majors.

It’s going to be wild & direction will come from the equities so make sure you’re following them. Once you’re in a trade hold it until the equities turn against you, you could nail 150+ pip moves easily.

Trading Pairs to Focus On

All major pairs are back in play.

AUDUSD, NZDUSD, USDJPY, EURUSD, GBPUSD, USDCHF, USDCAD

Check our Next Best Trades Watchlist for full details as to which specific pairs we are focusing on.

Technical Set Up – What’s Happening with the Majors

Check our Daily Analysis for detailed analysis of the Major currency pairs.

Today’s Fundamental Drivers

Plan the Trade, Trade the Plan!

The idea of our “Market Insight” is to give you some guidance into your daily preparation.

Your Daily Analysis needs to become habitual – For full guidance on our daily routine click here.

Make sure you don’t waste unnecessary time in front of the screens.

Remember you need to be fresh, confident and ready to trade and by sitting aimlessly in front of your screens you will become stale and uncertain.

The key to your sucess: Isolate the opportunities that work for you and focus on them.

Don’t worry about things that you can’t make…..chasing them will only cause problems (tiredness & irrational behaviour will take over).

Tune up your charts & get ready to trade…..see you in the 247 Trade Zone!

Brad

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