Russell Shor

Inflation is moderating, yet the Fed remains aggressive in policy. We attribute a reason for this to the tight labour market.

Last week’s dot plots suggest rates will move higher, with the terminal rate adjusted upwards from 4.6% to 5.10%. The Fed chair’s tone during the media conference was hawkish. Risk markets were less than impressed. They sold off heavily for the rest of the week. The market thinks that Fed policy is too aggressive.

The ECB has followed the Fed and the BoE with its own 50bps hike. It also announced quantitative tightening from March 2023. Tone was hawkish, with the statement saying, “interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.”

FXCM’s USDOLLAR basket spiked on the news before settling, charting a long upper shadow (blue arrow). Notably, the hourly EMAs and the stochastic are in bullish mode (black ellipses). The greenback is showing signs of strength. However, the daily chart on the left shows that the dollar is still trading in its weak area between the lower blue and red bands. Dollar rallies may be targets. This is because US…

EURUSD is trading in its area of strength, between the upper blue and red bands (blue arrow), on its daily chart. Price appreciation is a likelihood the longer it maintains in this position. On the righthand side, the hourly chart also shows bullish signs, with the trend-following EMAs and the stochastic having both crossed positively (black ellipses). Momentum is near the 80+ region (red rectangle) and if it holds, a…

The headline CPI came in at 7.1% YoY, below the forecast of 7.3% YoY and less than last month's 7.7% YoY. The core CPI also moderated to 6% YoY. The consensus was at 6.1% YoY, and last month's print was 6.3%.

FXCM's US30 CFD climbed 2% yesterday. This appreciation moved the index from its weak zone, between the lower blue and red bands, into its neutral region, between the blue bands (green square). On a relative basis, this is a movement of strength.

In this week's podcast, FXCM senior market specialists Nik and Russ discuss central banks' potential pausing. In addition, the two analysts discuss the inflation data, specifically the CPI release, which precedes the Fed's next rate hike by a day. Moreover, the BoE and ECB will hike on Thursday, with all three central banks expected to deliver 50bps. All these and more.

The EURUSD trades in its daily area of strength between the upper blue and red bands (blue arrow). The longer this region is maintained, the greater the likelihood of further appreciation. The market seems to be pricing in strength ahead of Wednesday's Fed release and Thursday's ECB statement.

FXCM's USDOLLAR basket remains subdued in its daily bear channel between the lower blue and red bands (green rectangle). However, this position will apply more downward pressure to the greenback if it maintains.

The merging of teams may already yield favourable repricing. The Goog.us daily chart is trading between the upper blue and red bands in its bullish channel. The hourly EMAs have crossed positively (black ellipse). If the stochastic follows suit (red ellipse) and moves to the 80+ region (blue arrow), an underlying bullish moment will build on the short-term chart