Dollar extends losses on weak US/China inflation data
James Chen October 14, 2015 8:10 PM
<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.
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.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.