Weekly Roundup: Dollar’s Selloff Continues After Lower Inflation

This week’s most important regular release of data was American annual inflation, core and non-core, on Wednesday. The non-core figure declined more than expected to 5%, driving the dollar lower in most of its pairs and gold up.

On Wednesday, the Bureau of Labor Statistics released data on inflation for March, with the headline non-core annual figure moving down to 5% against the expectation of 5.2%. This is a decline of a full percent from February’s release and has driven a strong reaction by most major CFDs. Non-core annual inflation in the USA has now been declining for nine straight months, and it seems nearly certain that June 2022’s 9.1% was the peak of this cycle:

This is certainly a positive sign for the American economy in general because it demonstrates that the Fed’s aggressive tightening of policy last year is having a significant effect in cutting demand. The key phrase from the Fed seems to have shifted from the familiar ‘necessary economic slowdown’ to ‘mild recession’. Even so, many participants in markets had been expecting at least a mild recession to arrive imminently from the beginning of the year.

The majority of participants expects the peak for the funds rate to be reached next month at 5-5.25% with the first cut in July according to CME FedWatch Tool. This is a positive in the longer term for the American economy but for timeframes relevant to traders of CFDs it also gives other central banks a chance to catch up to the Fed and for a possible continuation of the dollar’s decline against other major currencies.

Also on Wednesday this week the Bank of Canada kept its target overnight rate on hold again at 4.5%, reiterating that it thinks this is restrictive enough to bring inflation down to 2% around the end of next year. However, German annual non-core inflation came in at 7.4% on Thursday, in line with the preliminary figure and the consensus but still significantly higher than other major economies except for the UK.

US dollar-Canadian Dollar, Daily

USDCAD has broken out decisively below the 23.6% weekly Fibonacci retracement and the long-term uptrend which began in June last year as shown by the white line on the chart. After such a big move on Thursday in particular, immediate continuation lower doesn’t seem likely, but the door is open next week for a retest of areas around $1.327. Moving averages are in the process of reconfiguring as the 20 SMA death crossed the 50 SMA from Bands earlier this week.

However, there’s quite a strong oversold signal from Bollinger Bands and the slow stochastic at 16. The focus for this symbol next week is Canadian inflation at 12.30 GMT on Tuesday. If this also declines more than expected there might be some recovery by the greenback here, which could provide an opportunity to sell higher depending on the strength of the initial reaction.

Dollar-franc, Daily

The franc has been among the best performing major currencies this week as traders generally seem to be confident that the problems in the banking sector are over for now. 88.6 centimes, the low yesterday afternoon, is the strongest the franc has been against the dollar in more than two years. As above though for dollar-loonie, finding an entry to sell here after such a strong drop in only a few days would usually be considered excessively risky except in the very short term.

Three black crows is normally a strong signal of continuation downward, so combined with the faster moving averages successively below slower ones the downtrend seems to be here to stay until the Fed’s next meeting barring a sudden shift in sentiment. There are no major economic indicators due next week from either country; American preliminary building permits on Tuesday at 12.30 GMT and the usual initial jobless claims are the only noteworthy releases. That might suggest consolidation over the next few days before another possible leg down once Bands and the stochastic no longer flash oversold.

The opinions in this article are personal to the writer. They do not reflect those of Exness or FX Empire.