Traders added to the bet of a June rate hike by Fed after stronger consumer inflation reading. Dollar surged across the board with Dollar index taking out an important fibonacci level. Benchmark currency yields staged a strong rebound. But stocks were very resilient despite intensify speculation of an early Fed hike and rising yields. Gold also delivered a long-waited upside breakout in spite of Dollar strength.
Back in the currency markets, Yen was surprisingly the second strongest one but momentum has diminished towards the end of the week. Other currencies were mixed with Kiwi ended as the worst performing, followed by Euro and Swiss Franc. Inflation data will remain the focuses this week with CPI from UK, Canada and Japan featured. Also, eyes will be on how FOMC members would react to the current “transitory” surge in inflation.
Markets pricing in 72% chance of Fed hike by June
US consumer inflation was the biggest, and lasting, market driver last week, as CPI surged to 6.2% yoy in October. That’s the highest level in over three decades, and the fifth straight month of reading above 5%. The speculation of an earlier rate hike by Fed reignited after the data. Fed funds futures are now pricing in 72% chance of one 25bps rate hike by Fed or more by June next year. That’s sharply higher than 53.3% a week ago and nearly double of 38.2% a month ago.
Dollar index broke key fibonacci resistance finally
Dollar index surged to close at 95.12, resuming whole rise from 89.20. More importantly, 38.2% retracement of 102.99 to 94.46 has finally been taken out decisively. Near term outlook will now stay bullish as long as 93.27 support holds, for further rise to 61.8% retracement at 97.72.
The question now is whether the corrective pattern from 103.82 (2017 high) is complete with three waves to 89.20. Or, it’s a triangle pattern in it’s fourth leg. The medium term momentum above 97.72 fibonacci level will reveal some hints on which case it is. For now, we’ll just keep monitoring the development first.
10-year yield rebounded but no upside breakout
10-year yield staged a very strong rebound from 1.415 last, closing at 1.582. Yet there is no clear sign that consolidation from 1.691 is finished. Even so, there is an important resistance level ahead at 1.765. For now, while 1.415 should be a floor at least for the near term, outlook is neutral first and more range trading could be seen. Such development could cap USD/JPY’s rally attempts.
S&P 500 stays on bullish course after brief pull back
The intra-week pull back in US stocks was relatively shallow and brief. S&P 500 was held well above 4595.06 support and rebounded to close the week. Near term outlook stays bullish for next target of 38.2% projection of 3233.94 to 4545.85 from 4278.94 at 4780.07. However, daily MACD is already dipping down while SPX will approaches medium term channel resistance on next rise. Upside 4780.07 could provide some significant resistance to limit upside for the first attempt and bring a lengthier consolidation.
Gold to target 1909 after upside breakout
In other markets, Gold also rebounded fiercely to US inflation data and broke through 1833.79 resistance firmly. The development firstly confirms resumption of whole rise from 1682.60. More importantly, it reaffirms the case that corrective pattern from 2074.84 is completed. Near term outlook will stay bullish as long as 1822.10 support holds. Next target is 100% projection of 1682.60 to 1833.79 from 1757.84 at 1909.30, which is close to 1916.30 resistance. Sustained break above this level will further affirm medium term bullish and target 161.8% projection at 2002.46 next.
NZD/USD to extend medium term correction from 0.7463
NZD/USD was the biggest mover last week, losing -1.12%. The development suggests that corrective pattern from 0.6804 is complete with three waves up to 0.7217. More importantly, the rejection by medium term channel resistance argues that correction from 0.7463 is still in progress.
Break of 0.6858 support will firm this bearish case and should bring deeper fall through 0.6804 to 38.2% retracement of 0.5467 (2020 low) to 0.7463 (2021 high) at 0.6701. Also, for now, risk will stay on the downside as long as 0.7217 resistance holds, even in case of strong recovery.
EUR/USD’s down trend continued last week and hit as low as 1.1432. Initial bias remains on the downside this week for 100% projection 1.1908 to 1.1523 from 1.1691 at 1.1453 at 1.1306, which is close to long term fibonacci level at 1.1289. We’d pay attention to bottoming signal there. On the upside, above 1.1512 minor resistance will turn intraday bias neutral first. But overall near term outlook will stay bearish as long as 1.1691 resistance holds, even in case of strong rebound.
In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 could pave the way back to 1.0635.
In the long term picture, EUR/USD has possibly failed 1.2555 cluster resistance (38.2% retracement of 1.6039 to 1.0339 at 1.2516) again. Long term outlook will remain neutral as sideway pattern from 1.0339 (2017 low) is extending with another medium term fall. For now, we’d hold back from assessing the chance of downside breakout, and monitor the momentum of the decline from 1.2348 first.