US inflation data drives dollar down
Weaker headline inflation in the States has led traders to sell the dollar.
IGTV’s Jeremy Naylor goes through the numbers which showed a 5% print year-on-year which was lower than the 5.3% expected. The sell-off in the dollar was despite an expected 0.1 percentage point rise in the core rate to 5.6%.
CPI moves dollar down
We've seen some interesting moves on the US dollar as a result of some consumer price inflation (CPI) data out in the States for the month of March year-on-year (YoY).
The headline figure has come in far weaker than expected. The core number is as expected at 5.6%, up from 5.5% that was widely expected by economists in the market. But I think the important part to note about this is the pullback that we've seen in the headline rate, which includes food and more importantly fuel, natural gas, petrol and diesel. And that pullback in that area of the market has seen a big drop in the headline figure. It was 6%. We were expecting to drop down to 5.3%. It came through at 5%.
US dollar basket
And if you look at the 10-minute candles on the US dollar basket you can see as I said, the damage that's been done to the dollar as a result of this.
Now in the longer term trend, that's the 10 minute candles, but if we look at what's been happening on the daily candles you can see in the context of this, we are only now at levels not seen since the 5th of April.
But the way to trade this is go long on the euro against the dollar. And you can see we've just pierced this line of prime resistance at 10974. We're now at levels not seen since the 2nd of February with this move up for the euro against that weaker us dollar.
But I think more importantly, the direction of travel would seem to be leaning towards this area of resistance up here, which we had back on the 31st of March last year at 11180. So if you're long on this, your stock goes below the 109 level, you'd be down here at 10870 or so with a view to taking this market higher.
Now, a weaker dollar gives you a positive trade on gold. There is this contrarian trade here and gold is pushing up as we speak. It's now $24 above the $2000 level. And if we close at these levels today, which is now looking more likely than not, we'll be closing at levels not seen since the 9th of March.
Remember that 9th of March date, that was the day after we saw a new record high at $2070 for the price of gold. Is that the next price target? You bet that's where I'm headed for next.
Do watch out for earnings at the back end of this week. It'll give us a better understanding as to what's happening in the US economy. We've got banks reporting on Friday, watching out for bad debt provisions.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
Start trading forex today
Find opportunity on the world’s most-traded – and most-volatile – financial market
- Trade spreads from just 0.6 points on EUR/USD
- Analyse with clear, fast charts
- Speculate wherever you are with our intuitive mobile apps
See an FX opportunity?
Try a risk-free trade in your demo account, and see whether you’re onto something.
- Log in to your demo
- Take your position
- See whether your hunch pays off
See an FX opportunity?
Don’t miss your chance – upgrade to a live account to take advantage.
- Get spreads from just 0.6 points on popular pairs
- Analyse and deal seamlessly on fast, intuitive charts
- See and react to breaking news in-platform
See an FX opportunity?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.