After the release of the CPI, US Federal Reserve officials broadly agreed on the plan to begin the tapering process by mid-November

14 October 2021, 03:11

Market Focus

US markets traded higher following the release of the Consumer Prices Index. Consumer prices increased slightly more than expected in September. According to the Labor Department, the rise in food and energy prices offset the decline of used vehicles prices.

The US social security cost-of-living adjustment will be adjusted 5.9% higher in 2022, according to an announcement by the Social Security Administration. Notably, the adjustment will be the biggest boost in about 40 years. For 2021, the Social Security cost-of-living increase was only 1.3%.

After the release of the CPI, US Federal Reserve officials broadly agreed on the plan to begin the tapering process by mid-November. The tapering process could see a monthly reduction of $10 billion in Treasury and $5 billion in mortgage-backed securities.

Main Pairs Movement

Gold rose to the highest in almost a month as US Treasury yields and the US dollar declined after the release of CPI, which was slightly higher than expected. Gold was trading at $1,793, up nearly 2% on Wednesday. The upsurge of gold prices could be potentially seen as an initial reaction to inflation numbers.

GBPUSD traded further north, trading 0.52% higher. Lower US Treasury yields undermined the demand for the greenback; however, the upside momentum of the British pound was still limited as Brexit-led woes, a weaker GDP, and the worker shortage continues to be issues weighing on the Pound.

EURUSD traded similarly to GBPUSD amid concerns of US inflation and lower US Treasury yields. At the end of the day, the currency pair closed at 1.15907, 0.53% higher.

Technical Analysis

EURUSD (4-hour Chart)

The EUR/USD pair is trading at the intraday high of 1.1596 as of writing. However, the current recovery could well be seen as corrective, as the pair remains below a firmly bearish 20-DMA. The MACD histogram remains flat within the negative territory, while the RSI indicator has bounced from oversold readings, holding below 50.

As expected, the Fed reaffirmed their previous statements in the latest FOMC Minutes: to start tapering in either November or December, and to end it in mid-2022. The dull announcement has had little effect on the market.

As for the resistance and support levels, our opinion remains unchanged. The first support appears at the 1.15 psychological level, then 1.14225, which was May 2020’s peak. The resistance levels are at 1.161, 1.166 and 1.171, where the historical tops and bottoms lie. The 20-DMA is also a strong resistance to the pair, as a breach of it marks a flip of market sentiment.

Resistance: 1.1610, 1.1660, 1.1675,1.1710

Support: 1.153, 1.15, 1.14225

XAUUSD (4-hour Chart)

The price of gold on Wednesday has rallied as key data was announced today. U.S. inflation data showed that prices rose solidly in Sep, stoking expectations that the Federal Reserve will announce a tapering of stimulus next month, with the potential of rate hikes by mid-2022. The Consumer Price index rose 0.4% last month, versus a 0.3% rise expected by economists. At the time of writing, gold is trading at 1791.99. The price has travelled from a low of 1757 to a high of 1796, which tests the 200-day EMA.

On the technical front, the 4-hour RSI index has breached overbought territory at 72.83 figures, suggesting overly bullish sentiment in the short term. On the moving average side, the 15- and 60-long indicators are both heading towards upside traction.

As gold penetrates the 1780 psychological resistance level during the New York Session, we believe that the market has found accommodative bullish territory ahead, as shown by the Fed boosting the tapering expectation, as well as trends indicated by the price action. On the upside, we foresee 1800 pose as a barricade to upside traction, followed by 1830.

Resistance: 1800, 1830

Support: 1783, 1758, 1750

USDCAD (4 Hour Chart)

The Loonie has stayed under modest bearish pressure during the European session on Wednesday with the greenback struggling to find demand ahead of key events. As of writing, the pair was down 0.16% during the day market at 1.2445. This was due to higher-than-expected U.S. consumer prices, with Sept’s CPI accelerating to a 0.4% monthly rate and 5.4% year-on-year in September. At the same time, oil prices have been unfazed in the day market, courtesy of OPEC+, which lowered its estimates for the rest of 2021.

From a technical perspective, the RSI indicator is still clinging to over sought territory at 38 in nearly three days as the market has been faltering, suggesting bearish momentum in short term. On the moving average indicator, the 15- and 60-long indicators still are retaining downside movement.

Since the Loonie rapidly broke through a critical support level at 1.25, we expect that the next downward support will be last July’s low of 1.2425. On the upside, the psychological level at 1.25 will turn into a pivotal resistance for the short-term, with 1.256 behind.

Resistance: 1.25, 1.256

Support: 1.2425, 1.23