US CPI: Highest level in nearly 30 years! Gold near 5-month highs

IF CPI and PPI continue to come in stronger than expected, the inflation-hedge assets should continue to move higher

Uptrend 4

Yesterday, after US PPI was released at its highest levels since November 2010,  PPI turned to CPI and said, “Beat that!”  Well, US CPI responded to the challenge and reported its highest level since November 1990!  The headline YoY CPI print for October was 6.2% vs an expectation of 5.8% and a September reading of 5.4%, mainly driven my higher energy costs.  For the core print, which strips out food an energy, the reading was 4.6% vs 4.3% expected and 4% last. 

What is inflation?

Both readings are much higher than the Fed’s 2% target as traders are left to wonder how much of the inflation is really “transitory”.  Traders also need to question how much of this inflation will have an impact on the overall economy.  Moments after the CPI print, markets moved to pricing in a near 46% chance of a rate hike in June 2022.

cme fedwatch tool

Source: CME, Stone X

Gold (XAU/USD) has been moving higher over the last 4 days.  After the release of the CPI print, Gold sprinted even higher, ripping through previous highs and the 38.2% Fibonacci retracement, from the August 2020 highs to the August 2021 lows, to its highest level since June 17th.  Gold also broke through prior lows at 1853.55 as well.  The next resistance is at the downward sloping trendline dating back to September 1st, 2020 near 1869 and then the 50% retracement from the previously mentioned high at 1877.68.

xauusd daily

Source: Tradingview, Stone X

 

Trade Gold now:  Login or open a new account!

 

As gold moved higher, so did USD/JPY and the DXY:  exactly as one would expect from a higher inflation reading.  USD/JPY bounced off the support level we had discussed yesterday, near the rising trendline and the 38.2% Fibonacci retracement level from the September 22nd lows to the October 20th highs.  Next resistance is at the October 20th highs of 114.75.

usdjpy daily

Source: Tradingview, Stone X

 

Trade USD/JPY now:  Login or open a new account!

 

The US Dollar Index (DXY) is also testing new yearly all-time highs.  The previous high from November 5th was 94.62.  Today’s high thus far is 94.60.  There is immediate resistance above at the upward sloping trendline dating back to 2011 (red) near 94.70, just ahead of horizontal resistance from September of last year at 94.76. First support is down at the November 2nd lows of 93.18, then the 50 Day Moving Average at 93.57, followed by a convergence of an upward sloping trendline, the October 28th lows, and the 50% retracement from the September 3rd lows to the October 12th highs at 93.25

dxy daily

Source: Tradingview, Stone X

CPI and PPI are only 2 indicators the Fed uses to measure inflation.  However, if these readings continue to come in stronger than expected, the inflation-hedge assets should continue to move higher, which may also send stock indices lower!

Learn more about forex trading opportunities.


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.