Last week I gave a trade idea on XAUUSD with a target around the $2,020 price line. At the time of writing, XAUUSD already exceeded the target and I’m sure that would leave a lot of people wondering what to expect next. Below, I have presented my view of how I expect the price action to turn out in the meantime.
Inflation pressures USD
2022-12-15 • Updated
The US inflation keeps its momentum and rises to 7.5% as of February 10. The US consumer price index is 0.6% m/m versus 0.4% expected.
Markets are now pricing six rate hikes in 2022 versus five hikes a day before.
Why is it important?
The consumer price index presents a change in the price of goods and services purchased by consumers. It is the main index showing the overall inflation in the United States.
As inflation is essential for currency valuation and economic stability, the Federal Reserve must act quickly not to lose control over the situation. Therefore, the main question right now is how rapidly the FED will increase the rate on March 16. Until then, the market will use any hints to predict the value of the upcoming increase.
Us dollar index, daily chart
We can see that the market does not believe that the FED still has control over the situation as, after worse-than-expected CPI results, the US dollar index barely increases and pulls back after. It looks like the price is ready for a trend line breakout and global trend reversal.
EUR/USD, H4 chart
The pair broke through the descending trend line after the ECB hawkish statement, which is now the primary support. Even worse-than-expected CPI data could not send the price below this trend line. Therefore, we assume that the pair will increase rapidly after a short consolidation. Targets for this movement are 1.1480, 1.1530, and 1.1680.
Only FED's extremely hawkish statements and a rapid key rate increase will strengthen the US dollar. Otherwise, the greenback’s uptrend will be over for years.
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