Forex Signals Brief January 16: Can Retail Sales Extend the Bullish Reversal in the USD?
Yesterday the USD declined after the CPI inflation but reversed soon and ended the day higher. Today retail sales might extend the bullish move if they beat expectations for December.
Financial markets remained subdued as traders awaited CPI data, following a USD decline driven by weaker-than-expected PPI results. Anticipation grew over how these inflation metrics might shape the upcoming PCE index. The CPI rose 0.4% in December, primarily due to a 2.6% surge in energy prices, marking the largest monthly increase in nine months.
Annual headline inflation climbed to 2.9% from November’s 2.7%, the highest since July. However, core inflation, excluding food and energy, slowed to 0.2% monthly—below the forecasted 0.3%—bringing the annual core rate down to 3.2% from 3.3%, hinting at easing inflationary pressures. Equities responded positively.
The S&P 500 rose 1.7%, the Dow gained 1.8%, and the Nasdaq jumped 2.5%. The Russell 2000 had its best day since November, rising 2%. Commodities rallied, with crude oil climbing $3 to move above $80 and gold advancing $18 to $2,694, up 0.7%. Bitcoin briefly reclaimed the $100,000 mark before settling slightly below. The USD showed mixed performance in forex markets, recovering modestly as traders assessed inflation data and its potential economic impacts.
Today’s Market Expectations
The UK Consumer Price Index (CPI) for the year is projected to increase slightly to 2.7%, up from the previous figure of 2.6%, while the Core CPI YoY is expected to decline marginally to 3.4% from 3.5%. On the market front, there’s a 65% chance of a 25 basis point rate cut at the next policy meeting, with 47 basis points of easing expected by year-end. If the CPI report comes in weaker than forecasted, the likelihood of a rate cut will strengthen, whereas higher-than-expected results could temporarily remove a cut from the table.
In the US, CPI expectations suggest a YoY increase to 2.8% from 2.7%, while the MoM reading is predicted to remain unchanged at 0.3%. Core CPI YoY is forecasted to stay steady at 3.3%, and the Core CPI MoM is anticipated to ease to 0.2% from 0.3%. This CPI report is regarded as the most critical economic release of the month and could lead to significant market turbulence, particularly given the current vulnerability in equities. Following the robust Non-Farm Payroll (NFP) data, markets now anticipate just one rate cut this year, compared to the Fed’s earlier projection of two cuts. The strong NFP numbers have raised concerns that the recent 50 basis point rate reduction may have been overly aggressive, leading to rapid market repricing in recent months.
Forex Signals Update
Last week the USD started it on the back foot after the rumours for no tariffs, but on Tuesday the price action reversed and the USD resumed the larger uptrend, which made it easier for traders. We opened 28 trading signals in total, closing it with 20 winning forex signals and 8 losing ones.
Gold Consolidates Above MAs
Gold struggled to break key resistance at $2,725 last month, leading to a $100 decline. Support emerged at the 100-day SMA, while the 50-day SMA acted as resistance initially. Buyers pushed prices above the 50-day SMA midweek, but renewed selling pressure erased $30, bringing Gold back to the 50-day SMA. Support held firm, directing prices toward $2,700 once more.
XAU/USD – Daily Chart
Looking to Go Long on USD/CAD at the 20 Daily SMA Support
USD/CAD turned quite bullish in Q3 of 2024, surging around 10 cents higher, although the climb stalled below 145 and this forex pair has been consolidating in a range for about a month. This week we have seen a retreat to the bottom of the range, where the 20 daily SMA (green) is acting as support, so we are looking to open a buy USD/CAD signal around here.
USD/CAD – Daily Chart
Cryptocurrency Update
Bitcoin Reclaims the $100K Level
Bitcoin exhibited significant volatility in recent trading. After starting the week near $108,000, it experienced a sharp decline following a 25 basis point rate cut, plunging below $100,000 and reaching the low $90,000s. Despite briefly recovering to $95,000 and encountering resistance near the 20-day SMA, it fell again but found support in the current zone, creating a potential buying opportunity. Bitcoin rebounded 10% over the past two days, reclaiming the $100K level.
BTC/USD – Daily chart
Ethereum Returns Above $3,500 As Buyers Take Charge
Ethereum also faced notable fluctuations. Strong support around the 50-day SMA initially helped it recover, but bearish sentiment pushed it back below $3,500, with a further drop to $3,200. A temporary sell-off on Monday brought it under $3,000 before buyers re-entered, triggering a recovery. Midweek, Ethereum briefly surged to nearly $4,000 but lost momentum, retreating below $3,000 on Monday. However in the last two weeks we have seen a strong bullish reversal in the crypto market, which has sent the price to $3,500.
ETH/USD – Weekly Chart
