Don’t waste your time – keep track of how NFP affects the US dollar!

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Inflation pressures USD

Inflation pressures USD

Information is not investment advice

What happened?

The US inflation keeps its momentum and rises to 7.5% as of February 10. The US consumer price index is 0.6% m/m versus 0.4% expected. 

Markets are now pricing six rate hikes in 2022 versus five hikes a day before.

Why is it important?

The consumer price index presents a change in the price of goods and services purchased by consumers. It is the main index showing the overall inflation in the United States. 

As inflation is essential for currency valuation and economic stability, the Federal Reserve must act quickly not to lose control over the situation. Therefore, the main question right now is how rapidly the FED will increase the rate on March 16. Until then, the market will use any hints to predict the value of the upcoming increase. 

Technical analysis

Us dollar index, daily chart 

UsDollarDaily.png

We can see that the market does not believe that the FED still has control over the situation as, after worse-than-expected CPI results, the US dollar index barely increases and pulls back after. It looks like the price is ready for a trend line breakout and global trend reversal.

EUR/USD, H4 chart

EURUSDDaily.png

The pair broke through the descending trend line after the ECB hawkish statement, which is now the primary support. Even worse-than-expected CPI data could not send the price below this trend line. Therefore, we assume that the pair will increase rapidly after a short consolidation. Targets for this movement are 1.1480, 1.1530, and 1.1680.

Conclusion

Only FED's extremely hawkish statements and a rapid key rate increase will strengthen the US dollar. Otherwise, the greenback’s uptrend will be over for years. 

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Will the FOMC Surprise the Markets?

The first FOMC meeting comes after a buildup of anticipation from traders and investors alike, as the markets await what posture the Fed will take regarding the interest rates; would there be a hike or a cut in interest rates? Recall that the Federal Open Market Committee had previously ended the year 2022 with a 50bps hike, and an indication from Powell, the committee chairman, that the Fed could consider raising interest rates by 75bps in the course of the year 2023.

Will USDJPY slide lower in 2023?

Last year was tough for the Japanese yen. USDJPY gained more than 30% over 2022, striking above 150 in October. While anticipation of slower Fed rate hikes pulled the pair below the 130 level at the start of 2023, the speculations over the destiny of BOJ’s yield control policy grabbed the attention of the Japanese assets in the middle of January. What lies ahead for traders of the Japanese yen?

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