U.S. inflation explodes again with unusually high CPI data

13 April 2022, 03:12

Market Focus

U.S. stocks reversed earlier gains in the final hour of trading Tuesday amid fresh worries about the latest US CPI print, which showed that inflation in March further accelerated to a new 40-year high. S&P 500 edged 0.3% lower to 4397.35, and Dow Jones gave up an intraday climb to cap trading roughly 90 points, or 0.26%, lower to 34219.89. The Nasdaq Composite faltered after an earlier advance, declining 0.3% to 13371.57.

A pattern of prescient and potentially very lucrative trading has taken shape on a once-obscure corner of Wall Street – and U.S. investigators are suspicious. The setting is the world of special-purpose acquisition companies, or SPACs, the shell corporations that have flooded onto markets in recent years to raise money from investors and then hunt for companies to buy. The instrument is a stock warrant, which gives holders the right to buy shares at a specified price in the future. SPACs happen to issue a lot of warrants.

The curious trading pattern starts when someone buys piles of a SPAC’s warrants, sending the daily volume of trading 10, 20, or even 60 times above normal levels. Within a few weeks, word emerges that the SPAC has found a business to buy, often sending the warrant prices soaring. According to a Bloomberg review of almost 300 mergers announced since late 2018, such spikes in warrant trading appear in about one out of every four SPAC deals.

The U.S. Securities and Exchange Commission is now examining warrant trades that took place before deals to discern whether they were illegally based on inside information, according to people with knowledge of the matter. The SEC may open more inquiries as it sifts through additional reports of well-timed bets flagged by market surveillance systems, such as one run by the Financial Industry Regulatory Authority.

Main Pairs Movement:

The American dollar shed ground ahead of the release of US inflation figures, later recovering somewhat to close the day unevenly. It is stronger against the shared currency, as EUR/USD is trading around 1.0830, not far from the year low at 1.0805, and GBP/USD is battling around 1.3000, despite upbeat UK employment-related data.

Commodity-linked currencies spent most of the day up against their American rival, trimming some gains ahead of the close as Wall Street was unable to hold on to early gains. Aussie is trading around 0.7450, and USD/CAD stands at 1.2640.

Gold once reached a fresh multi-week high of $1,978.59 a troy ounce on Tuesday, but is now trading at around $1,965 Crude oil surged significantly as well, with WTI trading above $100.00, and Brent up to $105.50 a barrel after OPEC cut this year’s oil demand growth and also its supply forecast. Oil suffered a short-lived correction after Iran’s supreme leader Ali Khamenei said that nuclear talks “are going well.”. US government bond yields soared ahead of US data, later retreating. The yield on the 10-year US Treasury note peaked at 2.836%, and is now standing at 2.72%.

Technical Analysis:

AUDUSD (4- Hour Chart)

The Aussie snapped four days of consecutive losses against the US dollar, and is up 0.85% during the US session following mixed US inflation data. From the technical perspective, the overnight move-up brings AUD from a bearish to neutral stance. The breakout of the resistance at 0.7432 and 0.7471 has triggered some fresh buyings for AUDUSD. The acceptance above the next resistance at 0.7536 would boost AUDUSD to the upside. As the RSI reading is still far from overbought, AUDUSD has room to extend further north. At the same time, the MACD has turned positive, lending supports to bulls. On the flip side, if the currency pair cannot close its four-hour chart above 0.7471, then it might trigger some selling pressure.

Resistance:  0.7471, 0.7536, 0.7640, 0.7700

Support:  0.7432, 0.7300, 0.7277

XAUUSD (4- Hour Chart)

Gold spiked to fresh multi-week highs, above $1970. The bullion is boosted by the US CPI, which accelerates to 8.5%, triggering the risk sentiment that views gold as a hedge against the inflationary pressure. From the technical perspective, the four-hour outlook of gold turned upside following the breakthrough of the resistance at $1959. At the same time, the bulls are favourable as the resistance at $1959 is seen as a defensive level for bears while gold trades well above the 20 Simple Moving Average. The RSI indicator has not yet reached the overbought territory, providing an opportunity for gold to extend further north, challenging the next hurdle at $1980, followed by $2001.

Resistance: 1980, 2001

Support: 1959, 1934, 1890

USDCAD (4- Hour Chart)

USDCAD dropped sharply from three-week highs amid US inflation data and the upsurge of crude oil prices. From the technical perspective, USDCAD remains on the positive bias on the four-hour chart as it continues to trade within the upper bound of Bollinger Band. The support pivot at 1.26 has become a defensive level for the currency pair. Failure to hold above 1.26, will lead USDCAD to the negative territory. At the time of writing, the price action of the pair is directionless as the RSI sits at the midline, lacking fresh buying or selling. Further price action depends on the monetary decisions of the Bank of Canada on Wednesday.

Resistance: 1.2700

Support: 1.2600, 1.2460