Dollar Surge on High CPI

• U.S. CPI came higher than the previous reading and pushed the dollar higher.

• Wall Street rally halted as the market perceived a more restrictive policy from the Fed.

• Gold faced strong downside pressure amid the strengthening dollar.

Market Summary

The U.S. CPI release aligned with market expectations at 2.6%, reflecting a rebound in inflation within the country. Coupled with Donald Trumps election victory, this trend strengthens the likelihood of the Fed maintaining a restrictive stance to counter inflationary risks. This cautious Fed outlook contributed to a pause in Wall Street's recent rally, with the three main indexes trading sideways over the past two sessions. The dollar gained support from the CPI data, while safe-haven gold dropped to its lowest level since September as risk sentiment stayed elevated.

Meanwhile, oil prices remain under pressure, weighed down by forecasts for increased global production amid muted demand expectations. In forex, the Australian dollar faced selling pressure following disappointing job data, with employment change figures showing a stark decrease to 15.9k from the previous 64.1k reading. In the crypto space, BTC surged past the $93,000 level, fueled by post-election optimism and renewed advocacy from Elon Musk, sustaining bullish momentum in the digital asset market.

Current rate hike bets on 18th December Fed interest rate decision:

Source: CME Fedwatch Tool

0 bps (32.2%) VS -25 bps (67.8%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index continued its rally against six major currencies as investor optimism centred around Trump‘s inflationary policies. October’s U.S. inflation data met expectations, with the Labor Department reporting a 0.2% rise in the Consumer Price Index (CPI) for the fourth consecutive month, which had minimal immediate effect on the dollar. Nevertheless, the broader dollar uptrend remains bolstered by Trumps recent election victory, with market expectations leaning toward inflationary tariffs. This sentiment has left the dollar well-supported for further advances.

The Dollar Index is trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 71, suggesting the index might enter overbought territory.

Resistance level: 107.15, 108.00

Support level: 106.15, 104.55

XAU/USD, H4

Gold fell sharply on Wednesday as the U.S. Treasury yields increased, and the dollar hit a year-to-date (YTD) high. Despite briefly peaking at $2,618, gold saw significant downward pressure, driven by rising Treasury yields; the 10-year benchmark note yield increased by 2.5 basis points to 4.453%. Dollar-denominated gold is less appealing in this climate of strong dollar demand, and the inflation data‘s alignment with forecasts provided no relief for the precious metal’s bearish sentiment.

Gold prices are trading lower while currently testing the support level. However, MACD has illustrated diminishing bearish momentum, while RSI is at 28, suggesting the commodity might enter oversold territory.

Resistance level: 2660.00, 2705.00

Support level: 2595.00, 2550.00

AUD/USD, H4

The Australian dollar encountered selling pressure following the release of domestic job data in todays Tokyo session. Although the unemployment rate met expectations at 4.1%, the employment change came in at only 15.9k, significantly lower than the previous reading of 64.1k. This weaker employment growth suggests a softening labour market, which has dampened the strength of the Aussie dollar, adding downside risks as traders assess potential implications for future RBA policy moves.

The AUD/USD has reached a new low below the 0.6500 mark, suggesting a bearish bias for the pair. The RSI remains below the 50 level while the MACD continues to slide below the zero line, suggesting that the bearish momentum remains strong.

Resistance level: 0.6550, 0.6610

Support level: 0.6420, 0.6350