USDOLLAR Is Strongly Correlated to the Inflation Reading


Longer-Term Chart & Correlation

The charts below show the following:
* The top chart is the trimmed PCE inflation rate.
* The second chart is the RSI of the trimmed PCE inflation rate.
* The third chart is FXCM's USDOLLAR basket.
* The fourth chart is a 12-month rolling correlation coefficient of trimmed PCE inflation to the USDOLLAR.

The red dashed vertical shows when core trimmed PCE, and the USDOLLAR began appreciating after bottoming on 1 February 2021. Since then, the correlation coefficient has grown to a robust positive correlation of 0.88. The PCE has pushed above its top red Bollinger band (top chart), and its RSI has registered as overbought (blue rectangle). The USDOLLAR (third chart) is following suit and looks to be moving into the bullish area on the monthly chart between the upper red and upper blue bands. The inference is the strong relationship between the greenback and the rampant US inflation.

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Shorter-Term Analysis

The left chart below shows the FXCM USDOLLAR's daily time frame. It is positioned between the upper blue and red bands in its bullish area. Today's candle (still to complete), shows a long red candle down. This may present a dip in an uptrend opportunity. The righthand chart below shows the FXCM USDOLLAR hourly timeframe. The stochastic is below 20 (green rectangle), suggesting that the current momentum is down. However, if there is an opportunity, the trend following EMAs need to cross bullishly (black ellipse), and the stochastic needs to move up towards the 80 area. The S1/S2 pivots are vital levels that need to hold for the "buy the dip" odds to improve.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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