US dollar extended rally after the release of strong inflation data last Friday, which showed an annualised 2.4% jump of core CPI.

The CPI rose 0.2% m-o-m, in line with market’s earlier forecast. A gradual increase in the consumer prices suggested that the central bank will have more reasons to progress with rate hikes in the months to come, with the next rate hike most likely in Sep FOMC meetings. Recently released jobs data and inflation readings were the fundamental support for a strong dollar.

The US dollar index has broken out above a key resistance level of 95.20 and is trading at around 96.25 area this morning. The tumbling in Turkish Lira against the backdrop of deteriorating trade relationships resulted in surging demand for safety, and thus dollar and treasuries. The US dollar is gaining momentum amidst rising concerns over geopolitical and trade risks, on the back of strong fundamentals and Fed rate hikes.

Investors, however, abandoned the traditional safe-havens such as gold, as rising interest rate are pushing up the opportunity costs to hold them. Gold price has been consolidating at around US$ 1,210 level for weeks, with its immediate support level seen at US$ 1,205 (100% Fibonacci Retracement). The overall trend remains bearish as its SuperTrend (10, 2) and 10-Day Simple Moving Average line both sloped downwards.

Panic in the forex market had spilled over to other markets as well, with Asian markets pointed to a lower open this morning following broad sell-off in European and US equities last Friday. The S&P 500 index has reached technically oversold level at around 2,860 and since retraced back to 2,828 area. Recent sell-off, however, looks more like a healthy correction within an uptrend channel as fundamental elements remained strong and technical ascending channel is intact.

S&P 500 Index

US CPI – MoM (Seasonally Adjusted)

By Margaret Yang in Singapore

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