12 Nov

The Week Ahead – US Fed Faces Price Pressure

November 12, 2021

By Orbex

Fed

EURUSD tumbles as US inflation hits 30-year high

EURUSD

The US dollar skyrocketed across the board after hot inflation raised bets on rate hikes. US consumer prices jumped by 6.2% in October on a yearly basis. That’s the biggest surge since 1990.

The question now is how long Fed Chairman Jerome Powell will maintain the rhetoric that price pressures are still temporary. If the trend persists for the next couple of months, it could force the Fed to step in.

Current price action shows that traders are already front-running policymakers, as they price in two rate increases in 2022. The brief bounce has met stiff selling pressure at 1.1690. 1.1300 is the next support as the sell-off gains traction.

USDCAD rallies as Fed tightening may catch up

USDCAD

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The Canadian dollar edged lower against its US counterpart as the Fed tightening looms.

While the Bank of Canada was among the first central banks to exit quantitative easing, its US peer is catching up fast. As markets expect the Federal Reserve to act more aggressively, the loonie’s relative appeal has started to fade.

An upbeat inflation reading this week may support the Canadian dollar. But the BOC has a dilemma of its own. Slower growth undermined by supply disruptions makes rate hikes a hard pill to swallow.

The pair has bounced off its four-month low at 1.2300. The double top at 1.2900 is a major resistance.

US 30 retreats after inflation scare

US30

The Dow Jones 30 falls back as investors raise bets for higher US interest rates.

Amid rampant inflation, the Fed now has its credibility on the line and markets are betting that they would not allow inflation to get out of hand. The news has given market participants a reason to bag profits along the bull run, though macroeconomics remain sound.

The passage of the largest federal investment in infrastructure in more than a decade is likely to support cyclical stocks, notably industrial and financial constituents of the US index. The price is retreating towards 35500 near the previous top. 36550 is the new resistance.

UKOIL drops as the US taps strategic reserve

UKOIL

Oil prices consolidate gains near a three-year high as demand outlook brightens.

In an effort to rein in inflation, the Biden administration is looking to reduce energy costs. The prospect of tapping the Strategic Petroleum Reserve acts only as a short-term cap on prices. The underlying uptrend still enjoys signs of a global post-pandemic recovery, the latest being the US dropping travel restrictions.

On the supply side, OPEC+ has rebuffed calls by the White House to increase production. Unless supply starts to offset demand, Brent crude may grind to the psychological price tag of 90.00. 77.00 is fresh support in case of a pullback.

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