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US CPI Released, Inflation more Resilient: XAUUSD Fluctuated $20
Summary:
The U.S. CPI annualized at 6.4%, the smallest gain since October 2021. The unemployment rate dropped for the seventh consecutive time. However, it is certain that the Fed will emphasize the rebound in the month-on-month data on inflation, which could raise interest rate expectations again.
EXPIRED
1865.00
Entry Price
1830.00
TP
1872.00
SL
2627.10 -22.23 -0.84%
--
Pips
EXPIRED
1830.00
TP
1815.61
Exit Price
1865.00
Entry Price
1872.00
SL
Fundamentals
January CPI data showed that inflation was more stubborn than market expectations. The CPI (unadjusted) climbed 6.4% in January compared with a year earlier, more than the expected 6.20%, the seventh consecutive down and the smallest increase since October 2021.
The January core CPI (non-seasonally adjusted) increased 5.6% from a year ago, the smallest gain since December 2021. Driven by gasoline and housing costs, the January CPI (seasonally adjusted) rose 0.5% monthly, the biggest increase since June 2022. After the release of the data, the Fed swaps were priced at the highest policy rate in July 2023 of 5.27% and the swaps are no longer priced at the Fed’s 25 bps rate cut in 2023.
“The CPI data showed that more work needs to be done on inflation”, president Joe Biden said. Moreover, Biden appointed Brainard as director of the National Economic Advisory Council (NEC), who will end his term as vice chairman of the Fed around February 20, which means the position will be vacant.
Fed policymakers reiterated that they need to keep interest rate hikes to make inflation under control and the highest rate depends on future data.
"Given the strength of the labor market, there is clearly a risk that inflation will remain elevated for longer than expected and we may need to raise rates much higher." Federal Reserve Bank of New York President Williams said, the recent data are conducive to further rate hikes and the Fed has not yet adjusted rates to the necessary one and need to keep rates at restrictive levels for some time. Or, the Fed may raise rates to a higher level than currently expected, and cut rates within 24 or 25 years.
Technical Analysis 
U.S. 10-year Treasury yields rose after the release of CPI data, which showed higher inflation.
In the H4 chart, the price crossed the 0.618 Fibonacci range and fell back 0.786 (3.779%), which pushed the dollar higher and put pressure on XAUUSD.
According to CME Fed Watch, markets expect a 25bps hike to 4.75%-5.00% at the Fed’s March meeting, with a probability of 90.8%. The probability of 50bps hikes in the range of 5.00%-5.25% stands at 9.2 %. The probability of raising rates by 25bps in May is 17.8%, and the cumulative probability of 50bps rate hikes is 74.8%. The probability of cumulative rate hikes of 75bps to the range of 5.25%- 5.50% is 7.4% . The probability of 75bps rate hikes in June is 49.7%.
Yesterday, the U.S. dollar index fluctuated sharply. After the release of CPI data, the price fell back to 102.1673 and then rebounded.
With CPI data climbing slightly, the market expects the Fed will have to raise rates, while Powell will do more as the employment situation remains hot.
From technical analysis, the dollar is still on an upward trend and the price remains above the MA34. The nearest resistance zone is 103.4495 - 103.6125.
XAUUSD fluctuated by more than $20 after the release of the CPI data. Gold is still under pressure. After last week's non-farm payrolls, gold continued to fall. With such CPI data, the Fed is likely to maintain high-interest rates, causing gold to continue to drop.
Gold broke through the important area of 1865 and is now trading sideways in 1850-1865. The target area for gold is likely to be 1830 or beyond 1800.
Trading Recommendations
Trading Direction: Short
Entry Price: 1865
Target Price:1830
Stop Loss: 1872
Support: 1850-1830
Resistance: 1870 - 1886
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