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The US CPI came in 6.8%, which is the highest since 1982 but corresponds with the market’s expectations

Market Focus

US stock advanced on Friday, recovering from the previous day’s slide. The market now tends to believe that the Federal Reserve won’t have to accelerate plans to tighten monetary policy after the release of in-line inflation data. The US CPI came in 6.8%, which is the highest since 1982 but corresponds with the market’s expectations. Therefore, the fact that high US inflation wasn’t even higher supports the equity market. Also, Consumer Sentiment in US improved from a decade-low in November. On top of that, concerns about the spread of the new Omicron variant keep weighing on market sentiment, as companies in UK have started to tell employees to work from home. Investors now await the key Fed meeting this week, which might provide some clues on the pace of bond tapering and interest rate hikes.

The benchmarks, S&P 500, Nasdaq 100 and the Dow Jones Industrial Average both rose on Friday amid an upbeat market mood and relief that Fed won’t have to raise interest rates too early. S&P 500 was up 1.0% on a daily basis and the Dow Jones Industrial Average advanced with a 0.7% gain for the day. All eleven sectors stayed in positive territory as the information technology and consumer staples sectors are the best performing among all groups, gaining 2.07% and 1.99%, respectively. The Nasdaq 100 advanced the most with 1.1% gain on Friday and the VIX fell a further more than 2.0 points to under 19.50.

In Asia, after disclosures that came a day after the developer officially defaulted on their dollar debt, China Evergrande Group chairman Hui Ka Yan was forced to sell pledged shares in the company. Therefore, shares of Evergrande declined 1.7% lower as well as Chinese real estate stocks, which were also down 1.5%.

Main Pairs Movement

The US dollar edged 0.2% lower last Friday, staying in negative territory amid improved market sentiment. The DXY index gained bullish momentum and touched a daily top above 96.42 level during the European session, but then pulled back to below 96 and surrendered its intraday gains at the end of the day. The in-line US CPI data supported major US equities and put pressure on the greenback. Markets focus now shift to the Fed meeting this week, as investors expect a speed-up bond tapering.

GBP/USD and EUR/USD both advanced last Friday amid US dollar weakness, climbing 0.34% and 0.20%, respectively. The cable saw fresh buying and touched a three-day high above 1.327 during the American session. Meanwhile, EUR/USD recovered from a two-day low that touched earlier in the day, trading at around 1.131 area at the end of the day.

Gold advanced and touched a daily top around $1790 amid the high US inflation report, which rose the most since the early 1980s. The renewed selling witnessed in the greenback also acted as a tailwind for the precious metal, which gained 0.41% on a daily basis. WTI oil surged 1.81% for the day, closing out its best weekly performance since August. The growing confidence that the new Omicron variant is set to be far milder than past variants like delta pushed oil prices higher.

Technical Analysis

AUDUSD (4- Hour Chart)

AUDUSD retests 0.717, gaining some positive traction after the US CPI report. From the technical perspective, the pair is currently challenging its immediate hurdle at 0.717. The outlook turns positive as the pair has breached the bearish trendline. If AUDUSD can officially trade above 0.717, then it will reaffirm its upside momentum in the near term. Either from the RSI or the MACD, a buying opportunity occurs as both indicators currently favor buyers. On the flip side, if AUDUSD falls below its support at 0.7116, then it will turn downside as it will fall within the bearish trendline.

Resistance: 0.717, 0.7227

Support: 0.7116, 0.6997

GBPUSD (4- Hour Chart)

GBPUSD climbs above 1.3230 on worrisome US inflation report, hitting the highest in almost four decades. The US dollar seems vulnerable after the inflation report; in the meantime, heating US inflation figures might hint at steeper US Fed tightening. From the technical aspect, today’s upside momentum seems to bring GBPUSD out of the bearish trendline on the 4-hour chart, suggesting an overturn from bearish to bullish in the near term. A neutral RSI looks to favor bullish traders, who are also supported by a positive MACD. The next relevant resistance is set at 1.332, followed by 1.3417. On the flip side, if the pair fails to close its intraday price above the bearish trendline, then a selling opportunity will occur. The next relevant support is set at 1.3163.

Resistance: 1.3321, 1.3419, 1.3499

Support: 1.3163

EURUSD (4- Hour Chart)

EURUSD bounces modestly above 1.1300 after the US inflation surged 6.8% in November, reaching the highest in almost four decades. From the technical aspect, the overnight pullback from weekly lows seems to turn the currency pair back to the bullish mode in the near term. Climbing back above 1.1300 favors bullish traders as EURUSD is now trading above its 20 and 50 SMAs; in the meantime, the MACD indicator is now turning into positive levels at the time of writing. The current upside momentum is expected to bring the pair toward its immediate resistance at 1.1357. On the flip side, selling below 1.1299 region will reaffirm the negative bias and accelerate the downside momentum toward its support at 1.1186.

Resistance: 1.1357, 1.1462, 1.1548

Support: 1.1186

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