Dollar extends losses on weak US/China inflation data

<p>The US dollar extended its recent fall on Wednesday after inflation data from both China and the US came out significantly lower than expected. With […]</p>

The US dollar extended its recent fall on Wednesday after inflation data from both China and the US came out significantly lower than expected. With inflation and the global economy being of primary concern in the Fed’s decision to raise US interest rates, these data points further reinforced market expectations of a delayed rate hike.

China’s annual consumer price index in September came out at 1.6%, lower than the 1.8% that was expected and much lower than August’s 2.0%. This weak reading likely exacerbates the Fed’s concerns over the state of the Chinese and global economy.

Further aggravating these concerns was Wednesday morning’s US producer price index for the month of September, which declined by 0.5%, the largest decrease since January. Prior consensus expectations were for a decline of 0.2%.

These inflation releases and their potential rate hike implications combined to place further pressure on the US dollar on Wednesday morning and extend the dollar’s fall of the past two weeks. With this drop, gold has extended its rally, breaking out to a new three-month high.

USD/CHF Daily Chart

 

For USD/CHF, the fall of the dollar has been clearly displayed in a breakdown a week ago below a large rising wedge pattern, which is usually considered a bearish chart formation. Since January, the currency pair has been following a choppy, but well-defined, downtrend resistance line. Currently, USD/CHF has followed through on the wedge pattern breakdown to approach a major support level around 0.9500. In the event of a sustained breakdown below 0.9500, the next major downside target is the 0.9300 support level, last hit in late August.

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