US dollar roller coaster following US CPI data
Things panned out pretty much as expected today and patience was rewarded. The unpredictability of war is still causing central bankers and politicians headaches, though the markets are volatile but very range-bound
The headline US Consumer Price Index (CPI) for April registered an annual increase of 8.3%, which was slightly below the 8.5% increase registered in March and slightly above market expectations. At 0.3%, the monthly figure exceeded expectations of 0.2% but is still a lot slower than the 1.2% in the previous month's data. Year over year, the Core index increased by 6.2%. The energy index increased by 30.3%. In contrast, the food index increased 9.4%, which is the largest annual increase since April 1981.
President Joe Biden said today that annual inflation remains "unacceptably high," even though it showed signs of moderation in April. Part of his statement read, "As I said yesterday, inflation is a challenge for families across the country, and bringing it down is my top economic priority. This starts with the Federal Reserve, which plays a primary role in fighting inflation in our country. Beyond the Fed, my inflation plan is focused on lowering the costs that families face and lowering the federal deficit."
The start of May 2022, much like we saw in January 2022, is showing that the US economy is in fact running a surplus as it taxes more out of the economy than it spends into the economy. President Biden would love to know this I am sure, but the reality is that he is removing cash from corporate profits and personal savings, so America is feeling a lot poorer today than maybe it did at the end of the pandemic when cash was being pumped into people’s lives rather than removed.
Following the Bureau of Labour Statistics announcement for annual inflation, the US Treasury yields rose but have since dropped back below the 3% level along with the UK & German benchmark yields.
The US dollar index went through a roller coaster of moves and is back to where we started today. The fact that it remains above the middle of the range before the expansion, to me, suggests that we are going to see higher prices in the coming sessions.
US commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased by 8.5 million barrels to 424.2 million barrels in the week ending May 6, according to EIA data released today. The above chart shows this is the 3rd consecutive week of building inventories.
Despite the possible lack of demand, crude oil prices undone the previous day's drop as investors' concerns rose over the European Union's pending decision on the Russian oil embargo, which would affect global crude supply and possibly cripple the likes of Germany. Concerns over global demand decreased though as the number of COVID cases decreased in China.
Christine Lagarde, the president of the European Central Bank, discussed the COVID-19 pandemic and Russia's military intervention in Ukraine in her speech earlier today following the German Final CPI data which came in as expected.
"These events have delivered a much greater shock to the euro area than to other major economies" because they unveiled "the underlying weaknesses in the institutional architecture of the union."
As an outsider looking, when you have the northern European countries like France and Germany, propping up the southern countries like Greece, Portugal, Italy, etc. it has always been plainly obvious that the union was built on shallow foundations.
Today’s video was all about trading against the trapped traders following a news event. The US CPI came out at 1.30 pm BST and immediately the EURUSD dropped hard. In fact, it dropped below yesterday’s low and by 50% of the daily ATR. This was a perfect setup for a trade in the opposite direction.
As traders who were short bailed on their position the EURUSD rose and then came back to retest the new support line. It would have been a good trade had the market gone exponentially higher, but as it is we’re now correcting the day's move. I personally think this intraday channel breaks to the upside, but as I also think the DXY will break higher, I am not going to marry a long EURUSD trade and will close out at the end of today’s session.