The USDCHF has moved outside it's narrow trading range for the week after the stronger than expected CPI data. The high price reached 0.92887 which was the low of a swing area from January 28 and January 31.. That swing area comes between 0.9288 and 0.92937.a move above that area would increase the bullish bias and have traders entering the upper extreme from January 27 to January 31. The highs extended up to 0.9328, 0.93368, and 0.93425.
The pair has moved back down after the initial run higher, and is now testing a lower swing area between 0.9272 and 0.9279. Going back to early January, there were swing highs in that area. On January 27 when the price moved above that area, it picked up speed and on February 1, the price corrected up to that level after breaking below. The price stalled at that area.
So watch that level for interim intraday support. If the price moved below, we could see rotation back down toward the earlier highs for the week near 0.9261on disappointment. Be aware.
The CPI data continues move higher which is pushing the Fed back further into the corner as it remains slow to react. Will they play catch up in March with a 50 basis point hike?
Admittedly, the market has done the tightening for the Fed with 2 year up toward 1.5% and 10 year pushing 2%, but the Fed still hasn't tightened with the Fed funds target still at 0.25% in the short term (and the Fed still buying bonds and MBS). Corporations continue to talk about the higher inflationary pressures with the commodity prices trending higher.
Will the Fed and the markets get tired of waiting and waiting and waiting for the inflation numbers to start to pull back or will the they throw in the towel. The inflation train continues to move away from the station and we know it is hard to stop a train when it gets going. .
The next meeting is not until March 16. It is currently February 10.
Remembering back to old days, numbers like this (and the jobs report from last week) would have traders on edge for a rate hike around this time of day - ahead of the meeting.
Those days seem to be behind us as the Fed - and other central banks for that matter - are exploring new ways of monetary policy, with a kinder, gentler approach.
Time will tell....
See Adam's posts on the Fed and inflation click HERE
