Soft CPI Reading Boosts Wall Street

* U.S. CPI reading came lower than the market consensus, led the dollar to remain dull.

* Wall Street, encouraged by the lower CPI reading with Dow Jones, closed 700 points higher.

* Gold notched the $2700 mark yesterday on a softened dollar.

Market Summary

The U.S. CPI reading released yesterday came in below market expectations, reigniting speculation of continued Federal Reserve rate cuts in 2025. As a result, the dollar fluctuated but remained near its recent lows. However, with President-elect Donald Trumps inauguration approaching, this event could potentially strengthen the dollar in the coming sessions.

Meanwhile, the softer inflation data has reduced the likelihood of aggressive Fed tightening, favoring Wall Street. All three major indices closed higher, led by the Dow Jones, which surged over 700 points, hinting that the bearish trend in equities might be ending.

In the forex market, the UK CPI reading disappointed, coming in below expectations and dampening the Pound Sterling‘s strength. In contrast, Australia’s employment data exceeded market forecasts, boosting the Aussie dollar and reinforcing its bullish outlook.

In commodities, gold capitalized on the softened dollar, rallying to a one-month high. Oil prices also remain bullish as the EIA warned of supply disruptions following Russian oil sanctions, coupled with declining U.S. crude stockpiles, improving the demand outlook.

In the crypto market, Bitcoin has once again touched the $100,000 mark, signaling strong bullish momentum and reflecting heightened risk-on sentiment among crypto investors as Trumps inauguration draws closer.

Current rate hike bets on 29th January Fed interest rate decision:

Source: CME Fedwatch Tool

0 bps (97.9%) VS -25 bps (2.1%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index declined following a weaker-than-expected US inflation report. The U.S. CPI revealed mixed inflation signals, with headline CPI meeting expectations at 2.9%, while core CPI fell short, coming in at 0.2% against the expected 0.3%. This, along with disappointing PPI data, has led to a shift in the US economic outlook, reinforcing expectations that the Federal Reserve will keep interest rates lower for a longer period. As a result, U.S. Treasury yields dipped further, signaling potential easing in monetary policy and weighing on the dollars strength.

The Dollar Index is trading lower following the prior retracement from the resistance level. MACD has illustrated diminishing bullish momentum, while RSI is at 61, suggesting the index might experience technical correction since the RSI retreated from overbought territory.

Resistance level: 110.00, 111.75

Support level: 108.20, 106.30

XAU/USD, H4

Gold prices remain resilient, buoyed by weaker-than-expected U.S. economic data and ongoing trade uncertainties. The latest CPI report revealed core inflation falling short of expectations, reinforcing market hopes for interest rate cuts, which support golds safe-haven appeal. As concerns around economic growth and geopolitical risks persist, gold remains a favored asset for investors seeking stability in uncertain times.

Gold prices are trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 65, suggesting the commodity might extend its gains since the RSI stays above the midline.

Resistance level: 2720.00, 2755.00

Support level: 2690.00, 2660.00

Nasdaq, H4:

All three major U.S. indexes posted solid gains following a cooler-than-expected consumer price index (CPI) reading. Bank earnings dominated the markets focus, with strong results from top names boosting sentiment. The Nasdaq enjoyed a robust recovery, snapping a five-day losing streak, while the S&P 500 and Dow both posted their third consecutive gains

Nasdaq is trading higher while currently testing the resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 52, suggesting the index might extend its gains after breakout since the RSI stays above the midline.

Resistance level: 21255.00, 21820.00

Support level: 20730.00, 20395.00

CL OIL, H4

Oil prices surged on Thursday, following a strong rally the previous day, as a mix of factors supported the market. Softer-than-expected U.S. inflation data, fresh sanctions on Russian oil, and a significant drawdown in U.S. crude inventories all contributed to the price increase. Oil gained over 2% on Wednesday, driven by renewed expectations for interest rate cuts, which typically foster economic growth and increase oil demand.

Oil prices are trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 76, suggesting the commodity might enter overbought territory.

Resistance level: 83.75, 87.45

Support level: 78.80, 72.95