US Dollar, EUR/USD, GBP/USD, USD/JPY Talking Points:

• The US dollar collapsed on the back of a 7% CPI print earlier this morning.
• This price move is a lesson in expectations, as the markets were primed for another possible beat that didn’t end up showing up. But, after Powell’s rather dovish comments yesterday combined with this morning’s inflation, FX markets are resetting a bit, at least for now.
• The analysis contained in the article is based on price action and graphic formations. For more on price action or chart patterns, see our DailyFX Training section.

It was a busy morning around the US Dollar as another high inflation hit the strip. This morning saw December CPI rises to 7%, setting new 39-year high on this data point.

But – this is exactly where the market expected the data to print. And in response, the US Dollar moved aggressively lower very quickly, helped by President Powell’s somewhat dovish comment yesterday before Congress for his nomination hearings.

As markets brace for more and more rate hikes from the Fed, expectations have shifted a bit; to the extent that even a print of 7% inflation cannot evoke much more hawkish expectations from market participants.

But, this inflation story is not over yet, as the table below of inflation data for the past five years shows.

Overall CPI data since January 2017

Chart prepared by James Stanley

US Dollar: Oversold on H4

I talked about the US dollar descending triangle yesterday. Today, this formation filled with a bearish breakdown.

The US Dollar quickly moved into oversold territory via the RSI on the four-hour chart. And, keep in mind those expectations of a more hawkish Fed this year, with the median expectation now showing four hikes, beyond the 2-3 the Fed talked about in December’s rate decision.

At this point, selling the greenback could be a challenge given how quickly this move has been priced in. And there may be a case for reversal scenarios, which I will examine below.

Four-hour price chart in US dollars

Chart prepared by James Stanley; USD, DXY on Tradingview

EUR/USD: the ascending triangle is filling up

The mirror image of this descending triangle on the US Dollar above is the ascending triangle formation that appears across most of EUR/USD. I published an article on this configuration on Monday, highlighting the pair’s upside potential, at least in the short term, ahead of today’s inflationary print.

Now that the breakout has subsided, the question is where this next point of resistance might appear. On my chart, the 1.1448-1.1500 area looks key, although this is probably already widely known. The previous swing-low before last year’s breakout tested below this area is around 1.1529, and this earlier support point may remain as potential short-term resistance.

EUR/USD daily price chart

Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD

My favorite avenue for USD weakness scenarios has been GBP/USD.

The couple threatened to be invalidated of a bull flag formation early December, appearing around a key confluence point on the chart. But a BoE rate hike helped in the middle of last month and bulls have been on the prowl ever since.

Yesterday the resistance side of the bull flag was tested, and today saw an even bigger push from the buyers as this uptrend expands.

While the market is overbought from various points of view, I talked about different ways to handle these issues in yesterday’s webinar.

GBP/USD daily price chart

Chart prepared by James Stanley; GBPUSD on Tradingview

USD/JPY approaches wedge support on the upside

USD/JPY hit a new multi-year high last week, but there was minimal follow through in this theme with price returning to 115.00 support yesterday.

In yesterday’s webinar, I highlighted a rising wedge formation – often followed for the purpose of bearish breakdowns. The support side of this formation is approaching, and just below is a strong support point at the 114.00 handle.

Given the recentness of this countertrend move, traders might rightly want to wait for confirmation before looking to dampen what was previously one of the most consistent trends. But, a break down below 114.00 begins to open the door for deeper reversal prospects in the pair.

USD/JPY daily price chart

Chart prepared by James Stanley; USDJPY on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX