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Forex Today: US Inflation Slightly Lower, Risk-On Rally

Yesterday’s US CPI data release came in slightly lower than expected, with inflation increasing by only 0.3% over the month, triggering a risk-on rally which sent stocks to new record highs.

  1. The most important macro data release in the market came yesterday – US CPI, which came in slightly lower than expected with a month-on-month increase of only 0.3%. Although this was only slightly below expectations, the data sent stock markets rising strongly to new record high, notably in both the NASDAQ 100 Index and the S&P 500 Index. Several commodities also saw price increases, while the US Dollar sold off as the news will likely slightly bring forward rate cut expectations. It is unclear whether this risk-on rally has much further to run today as the market starts to ask itself whether it overreacted, but new long-term highs are usually best taken as a bullish sign.
  2. In the Forex market, the major story is fresh weakness in the US Dollar, so Forex traders may want to look for short Dollar trades over the short term. Since the Tokyo open, the strongest major currency is the Japanese Yen, while the Australian Dollar is the weakest.
  3. Gold and Silver rose yesterday, with Silver looking the more bullish as it reached a new 2-year high. Silver will be especially interesting to trend traders on the long side.
  4. Copper futures are continuing to advance to new 2-year high prices, so will be attractive to trend traders on the long side.
  5. Crude Oil rose slightly yesterday on lower US stockpiles and increasing risk-on sentiment, suggesting WTI may be bottoming out at $78.
  6. Yesterday saw the following data releases apart from US CPI:
  • US Retail Sales – this came in well below expectations, suggesting slowing demand, which supports the case for earlier rate cuts.
  • US Empire State Manufacturing Index – just a fraction worse than expected.
  • Australian Unemployment Rate – this saw an unexpected increase from 3.9% to 4.1%.
  1. There will be a release later today of US Unemployment Claims data.

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