The US CPI data came in within expectations as the figures met estimates and that made for a scene where broader markets struggled with what to do next. The dollar whipsawed not only in the initial reaction but also in the aftermath, before traders and investors read between the lines to view the report as one being on the softer side. I mean, just look at this EUR/USD price action:
If you're trading on the data itself, that'll be a real killer as the market was rather indecisive in the hour or so after the key risk event.
But ultimately, the dollar settled lower as bets of a more aggressive Fed were toned down with some quarters of the market now calling for a 25 bps rate hike instead next.
The two most prominent charts in play for the dollar right now in my view are against the euro and the yen. Let's take a look.
In the case of EUR/USD, the move yesterday vindicates the break above the recent resistance of 1.0700 as buyers now even take out 1.0800. That clears the path towards the 50.0 Fib retracement level of the swing lower from 2021, seen at 1.0942 next. All that before we get to the next key psychological resistance at 1.1000 - which plenty of market players are pinning now after yesterday.
Then, we also saw a material breakdown in USD/JPY as it fell through 130.00 to its lowest levels since 1 June. The move also owes much to the recent BOJ speculation though and I would argue that it wasn't so much so the CPI data that caused such ripples in the pair yesterday.
The downside momentum was largely carried over from Asia amid rising anxiety that the BOJ might look to further tweak or at least signal a policy change at next week's meeting.
In any case, from a technical perspective, the break under 130.00 puts sellers in a good spot in search of a further downside break towards the May lows around 126.55-65 with the 125.00 mark a key level to also be mindful of.
