USD Weakens As Inflationary Pressures Confirmed

Oct 14 21, 08:46 GMT

The USD weakened against a number of its counterparts yesterday as inflationary pressures within the US economy were reaffirmed by the release of the US CPI rates for September. It’s characteristic that the headline CPI rate on a year-on-year level ticked up reaching once again a 13-year high. On the other hand, the Fed September meeting minutes confirmed the Fed’s plans to actually start tapering the bank’s QE program this year and the tapering to be complete by mid-2022. US yields tended to decline and given the USD weakness; gold’s price found the chance to rise as the precious metal is also considered a hedging instrument against inflationary pressures. US stockmarkets marked some small gains yesterday and we expect fundamentals to continue to keep the interest of traders alive, albeit some attention is expected to also be placed on the release of the weekly initial jobless claims figure later today as well as the Fed policymakers which are scheduled to speak today.

The USD index dropped yesterday breaking the 94.10 (R1) support line, now turned to resistance. As the index dropped it also broke the upward trendline characterizing its movement since the 16th of September. As the upward trendline has been broken we switch our bullish outlook in favor of a sideways motion bias initially. Please note that the RSI indicator below our 4-hour chart is between the readings of 50 and 30, implying a small advantage for the bears at the time. Should the bears actually take control over the index’s direction, we may see it aiming if not breaking the 93.70 (S1) support line, thus paving the way for the 93.20 (S2) level. Should the bulls take over we may see the index breaking the 94.10 (R1) resistance line and aim for the 94.60 (R2) level.

Loonie gains as WTI prices continue to rise

The CAD seems to strengthen against the USD, supported by rising WTI prices, but yet for other analysts the yield differential spread in favor of the Loonie is also mentioned. Oil prices gained despite API reporting a wider build up of crude oil inventories as expectations for higher demand for black gold were maintained. We tend to remain bullish for the Canadian currency currently and we note the release of Canada’s manufacturing sales growth rate for August during today’s American session. On the monetary front, BoC’s confidence seems to remain and given the stellar employment data of September we may see the bank accelerating it QE tapering plans, probably also moving to an earlier date any possible rate hikes, thus highlighting its hawkish profile.

USD/CAD continued to drop, and is currently testing the 1.2425 (S1) support line. We tend to maintain a bearish outlook for the pair as long as it remains below the downward trendline incepted since the 30th of September. Please note that the RSI indicator below our 4-hour chart is nearing the reading of 30, confirming the bearish sentiment. Should the selling interest continue to direct the pair, we may see it breaking the 1.2425 (S1) support line aiming for the 1.2330 (S2) level. On the other hand, should buyers take the initiative and direct the pair, we may see it reversing course, breaking the prementioned downward trendline and breaching the 1.2500 (R1) resistance line.

Today’s events and expectations

Today during the European session, we get from the Sweden’s CPI rates for September. In the American session we note the US weekly initial jobless claims figure and the PPI rates for September, while from Canada we get the manufacturing sales growth rate for August. On the other hand, oil traders could be more interested in the release of the EIA weekly crude oil inventories figure. During tomorrow’s Asian session we get New Zealand’s Manufacturing PMI figure for September.

USD Index H4 Chart

Support: 93.70 (S1), 93.20 (S2), 92.75 (S3)