the CPI data surged 7.5% on a year-over-year basis, beating economists’ expectations for a 7.3% increase and the largest annual inflation increase in 40 years

11 February 2022, 03:10

Market Focus

Wall Street’s three major indexes ended sharply lower on Thursday after higher-than-expected U.S. consumer price data and subsequent comments from Federal Reserve officials stoked fears that the central bank will raise interest rates sharply to fight inflation, pushing the 10-year U.S. Treasury yield higher, making the yield top 2%, and causing tech stocks to fall under pressure. Regarding the CPI data, U.S. Labor Department data showed that consumer prices surged 7.5% on a year-over-year basis, beating economists’ expectations for a 7.3% increase and the largest annual inflation increase in 40 years. At closing, the Dow Jones Industrial Average fell 1.47% to 35,241.59 points, the S&P 500 index lost 1.81% to 4,504.06 and the Nasdaq Composite Index slipped 2.1% to 14,185.64 points. The S&P 500 is now down about 5% for 2022, while the Nasdaq is down about 9%.

The 11 sectors of the S&P 500 were dismal. The biggest loser was the real estate sector, down 2.86%, followed by the information technology and utilities sectors, down 2.75% and 2.61%, respectively. Large-cap stocks like Apple, Alphabet, Meta Platforms, Amazon all fell more than 1% while Tesla, Nvidia and Microsoft all fell about 3%. However, there were some positives in the market, like impressive quarterly earnings. Coca-Cola rose 0.5% after reporting fourth-quarter results that beat Wall Street expectations, and Walt Disney rose more than 3% after reporting better-than-expected quarterly results, helped by strong growth in its parks business and upbeat subscriber numbers.

Main Pairs Movement

As CPI data soared, government bond yields were pushed higher. U.S. 10-year yields surged to 2.02%, crossing the 2% threshold for the first time since 2019, while 2-year yields were as high as 1.51%. The rising yield provided some momentum for the dollar, which rose 0.51% after the data, but then retreated by 0.84%.

The mixed movement on the Greenback caused competitors to oscillate intraday. EUR/USD topped the 1.14948 level, a new 2022 high, then retreated to the 1.14270 area. Earlier in the day, the European Commission raised its inflation forecast for this year from 3.5% but still expects inflation to fall to 1.7% in 2023. Sterling followed a similar move, with GBP/USD holding on to intraday gains after hitting a monthly high of 1.3643 but then closing just below the 1.3600 level.

Gold jumped to $1,841.83 per ounce but fell back to the $1,830 area. Crude oil prices were little changed at the close. OPEC raised its forecast for crude demand in 2022 by 100K bpd, but reported an increase of 64K bpd in January, falling behind in the increase in OPEC+ commitments. In the end, WTI closed at $90.03 a barrel and Brent at $91.36 a barrel.

Technical Analysis

EURUSD (4-Hour Chart)

EUR/USD edged higher on Thursday, rebounding back to the 1.1440 area amid renewed US dollar weakness, where the pair witnessed heavy selling after the release of US CPI data. The pair tumbled to a weekly low near the 1.1380 area after the release of US CPI data but then regained upside traction to eliminate its daily losses. The pair was last seen trading at 1.1441, posting a 0.19% gain on a daily basis. EUR/USD stayed in negative territory earlier in the session amid the surging US dollar, as the higher-than-expected US CPI report lent support to the Greenback and US Treasury bond yields. Inflation in the US rose to 7.5% on a yearly basis in January, surpassing the market expectation of 7.3% and reinforcing the expectation of a more aggressive lift-off by the Fed. In Europe, ECB Governing Council member Joachim Nagel’s hawkish comments yesterday might limit the losses for the EUR/USD pair.

On the technical side, RSI is at 56 as of writing, suggesting that the upside is more favoured as the RSI stays above the midline. As for the Bollinger Bands, the price is rising from the moving average after touching it, which indicates that the pair could retain its upside traction. In conclusion, we think the market will be slightly bullish as the pair might re-test the 1.1480 resistance.

Resistance: 1.1480, 1.1600

Support: 1.1360, 1.1284, 1.1132

GBPUSD (4-Hour Chart)

GBP/USD advanced on Thursday, approaching the 1.3600 mark as investors assess higher-than-expected US CPI data. The pair witnessed a dramatic turnaround in reaction to US inflation data, dropping to a fresh daily low below the 1.3530 level before bouncing back. At the time of writing, Cable has stayed in positive territory with a 0.59% gain for the day, staging a goodish rebound amid renewed US dollar weakness. The higher CPI data from the US reinforced rate hike expectations from the Federal Reserve and triggered volatility across the financial markets. On top of that, the cautious comments from Bank of England Chief Economist Huw Pill yesterday might limit the upside for the cable, as well as the renewed tensions over the Northern Ireland Protocol of the Brexit agreement.

On the technical side, the RSI is at 62, suggesting bull movement ahead. As for the Bollinger Bands, the price moves out of the upper band, so a strong trend continuation can be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 1.3633 resistance line. The near-term bullish bias stays intact as the GBP/USD pair trades above the 200-period SMA on the four-hour chart.

Resistance: 1.3633, 1.3739

Support: 1.3512, 1.3456, 1.3372

USDCAD (4-Hour Chart)

After the previous day’s slide to 1.2670 area, USD/CAD regained bullish momentum and refreshed the three-day top amid higher-than-expected US CPI data. But the pair has pulled back to surrender most of its intraday’s gain as the renewed US dollar weakness dragged the pair lower. USD/CAD now remains under pressure post-US inflation report, losing 0.01%. However, the expectations that the Fed will announce the plan to begin tightening policy at its March meeting might limit the losses for the greenback and USD/CAD pair. On top of that, surging crude oil prices also acted as a headwind for the pair, as WTI climbs above $91 and posts a 1.36% gain on a daily basis.

On the technical side, the RSI is at 38, suggesting that the downside is more favoured as the RSI stayed below the midline. As for the Bollinger Bands, the price fell out of the lower band, therefore the downside momentum should persist. In conclusion, we think the market will be bearish as the pair has already broken the previous support at 1.2667, therefore additional losses could be expected for the pair.

Resistance: 1.2778, 1.2828

Support: 1.2667, 1.2575, 1.2462