US Dollar Whipsaws on Inflation Data as Safe Havens Retreat

Hello traders, welcome to Thursday’s market commentary. Today, we’re still digesting yesterday’s US inflation data, which came largely in line with expectations, except for the Core CPI, which came in slightly higher at 0.3% instead of the expected 0.2%. This deviation had a noticeable effect on the US dollar, which I’ll discuss in a moment, but first, let’s run through the rest of today’s calendar.

The market is bracing for a potentially pivotal day, as we have the ECB’s interest rate decision coming up. The European Central Bank is expected to cut rates, marking a resumption of its rate-cutting cycle. Traders will be watching closely to see if this forecast materializes. Additionally, we have more US inflation data, but this time it’s Producer Price Index (PPI), alongside the usual US unemployment claims report.

Yesterday’s market reaction to the US inflation data was a bit of a whipsaw for the American dollar. Initially, the dollar strengthened following the release, but as the session progressed, we saw a reversal, and the dollar ended the day weaker. This type of price action can be frustrating for swing traders and trend followers, though scalpers might have found some opportunities amid the volatility.

On the forex market, we’re seeing a sharp reversal in safe havens like the Japanese yen, which was one of the strongest currencies just a few days ago but has since become the weakest. Similarly, the Swiss franc and US dollar have lost ground, while commodity currencies like the New Zealand dollar and Australian dollar are gaining strength. This makes sense when we consider that indices are in recovery mode, with the past three days showing positive momentum. Today’s session is starting in the green, suggesting a risk-on environment where investors are favoring riskier assets over safe havens.

This risk-on sentiment is also evident in the commodities market, where we’re seeing an upswing, particularly in metals, which have been in the green for the past three days. This aligns with the strength of commodity currencies, reinforcing the current market correlations.

In terms of specific setups, some interesting opportunities are emerging:

• USD/CAD: A bounce off the 1.36 resistance makes this pair worth watching.
• USD/JPY: After a recent reversal, the pair shows potential for a bullish correction.
• USD/CHF: The pair appears to be setting up for a bullish correction, signaling a potential exit from safe havens.

Source: https://www.axiory.com/analytics/market-news/us-dollar-whipsaws-on-inflation-data-as-safe-haven