Indices Set New Highs, But Can They Hold? Wednesday's Bearish Correction Signals Sell
13 April 2023
What a day it was yesterday! There was a lot of key macroeconomic data, with the most important being the inflation data from the US. On a yearly basis, the CPI came in at 5%, which was lower than the expected 5.1%. The previous reading was at 6%. Generally, this is good news for anyone concerned about rising living costs and is in line with the recent trend, which shows that the inflation peak is behind us.
Apart from the CPI data from the US, we also had an interest rate decision from Canada, and there were no surprises there. The BOC decided to keep the rates unchanged at 4.5%. However, the Canadian Dollar did not benefit from this decision and ended Wednesday as one of the weakest currencies on the market.
The real highlight of the day was the release of the FOMC Minutes, which came at the end of the American session. The general consensus was that some participants would have hiked more if there had been no banking crisis at that time, as the disinflation process was not as rapid as expected. The USD initially gained momentum from the CPI and FOMC Minutes, but it ended Wednesday as the weakest currency in the market. The EURUSD reached its highest levels since the beginning of February, while the USDCHF dropped to its lowest levels in almost 2 years.
The continuation of the Dollar's weakness had a positive influence on commodity prices. Brent and WTI climbed higher, breaking out of the sideways movement that had been created after the bullish gap resulting from the OPEC+ output cut. The sentiment on Oil is positive, and it appears that we will have to wait a bit longer for the technical gap-closing movement.
The indices did not have a good ride on Wednesday. Most of them finished the day with ugly shooting stars, which could be an invitation to a bigger bearish correction. Although some indices set new long-term highs during the session, the rejection of those highs was almost immediate and very rapid. This rejection gives us a short-term signal to sell.
Today's calendar is also busy. We already received the job data from Australia, which came in much better than expected. Employment rose by 53K instead of the expected 20.8K, which is why the Australian Dollar started Thursday as the strongest currency among majors. In a few minutes, we will also get the GDP number from the UK, which is expected to come in at 0.1%. The day will end with the PPI number from the US and the speech from the BOC Governor Macklem.