AUD/USD Sets New 2-Month Highs as the European Session Gets Underway
US Inflation & Powell Testimony
Wednesday's data showed that US Headline CPI Inflation jumped 7% year-over-year in December, the highest since 1982. The Core reading surged to the highest since 1991, coming in at 5.5% year-over-year.
This however worked against the US Dollar as there may have been some "sell the rumor, buy the fact" activity, or markets simply judge that inflation approaches a peak.
A day before, mr Powell had provided a less-hawkish than expected testimony, since he had said that "at some point perhaps later this year allow the balance sheet to run off" [1].
This also weighed on the US Dollar, as it was far more timid, compared to last week's Fed minutes, which had noted that "Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate". [2]
Mr Bullard & Ms Brainard
The President of St Louis though, Mr Bullard, continued to beat his hawkish drum, bolstered by red hot inflation. Overnight, he remarked on Wall Street Journal, that four interest rate hikes in 2022 now appear likely. [3]
Ms Brainard testifies today in the US Senate for her nomination as Fed Vice-Chair and in her prepared remarks she noted that "inflation is too high" and that the bank's most important goal task "getting inflation back down to 2 percent while sustaining a recovery that includes everyone". [3]
AUD/USD Reaction
The pair runs its third straight profitable day and closed Wednesday above key levels – the 50% Fibonacci of the "October High/November Low" decline and the Ichimoku Cloud.
Past Performance: Past Performance is not an indicator of future results.
This places the 200Days EMA in its crosshairs (mid-0.7300s), but it may be early for challenging 0.7422, as the Fed's hawkishness seems to be priced in.
One of the factors that have helped the Aussie was the rise in Oil prices which ease today, while the Relative Strength Index (RSI) points to overbought conditions. As such, pressure back towards mid-0.7200 would not be surprising, but a strong sentiment reversal would be needed for a breach of the EMA200 (0.7207-15).
Market participants will now turn to Ms Brainard's nomination hearing, while on the data front we expect US Jobless Claims and Producer Price Index.
Past Performance: Past Performance is not an indicator of future results.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 13 Jan 2022 https://www.banking.senate.gov/hearings/01/04/2022/nomination-hearing | |
| Retrieved 13 Jan 2022 https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20211215.pdf | |
| Retrieved 13 Jan 2022 https://www.wsj.com/articles/fed-s-bullard-four-interest-rate-rises-in-2022-now-appear-likely-11642017785 |
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