US inflation data drives dollar down

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%.

(Video Transcript)

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.

EUR/USD

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.

Gold

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.