The real yield is in its hawkish channel, between the upper blue and red bands (top chart). The core CPI printed at 0.4% m/m, higher than the previous 0.3% m/m. This is 4.9% annualised, much higher than the previous 3.66%. The Fed still has work to do to bring core inflation down towards its target of 2% average.
Fed officials want more rate hikes to control inflation, but disagree on when to pause. Some say rates may need to exceed projections for inflation to subside. Barkin warns of "further action" if inflation stays high, while Harker suggests rates over 5% to counter inflation.
FXCM's USDOLLAR has followed the hawks and finds itself in its bullish channel between its upper blue and red bands (middle chart). This is not surprising. The correlation coefficient between the two series is a solid 90% (bottom indicator).
The longer that the real rate persists in its hawkish area, the greater the likelihood that the USDOLLAR remains in its bullish channel.
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.