Summary:

• US Core PPI and initial jobless claims both beat forecasts
• USD index on the rise after earlier hitting 2-week low
• Gold pulls back from 1300/oz

Some positive data from across the Atlantic has provided a boost to the US dollar after the greenback earlier fell to a 2-week low. Despite the disastrous headline print in the last week’s NFP report, the wages and unemployment components improved leaving an overall mildly positive feeling on the labour market. The weekly initial jobless claims doesn’t garner as much attention as NFP but in falling to 243k vs 251k expected in this afternoon’s release it has now beaten forecasts in 4 out of the last 5 weeks and suggests the labour market remains in good health. 

 With employment ticking along nicely there has been a growing focus on inflation and the pronounced drop seen in recent months has led some to believe that the Fed may adopt a less hawkish path whilst inflation remains below their 2% target. Along these lines the most USD positive aspect of this afternoon’s data was probably the rise in the September producer price index which rose to 2.6% y/y from 1.9% prior. Stripping out food, energy and trade to look at the core reading reveals an even stronger data point with a rise to 2.1% y/y compared to 1.9% y/y expected and there has been an immediate tick higher in the US dollar. 

 Today’s release showing a rise in PPI could lead to a beat in Friday’s CPI equivalent. Source: xStation 

 The US dollar index has been sliding lower in recent sessions but this latest data batch has offered some cause for optimism. Longer term there could be two different scenarios playing out for the market; one that would occur should we get further weakness and one that would signal a possible recovery after the decline seen for much of the year. 

Firstly the case for more weakness would gain backing should we revisit the 2017 low of 90.98. A break below here would see the downtrend extend lower and open up the possibility of further declines ahead.  

 A break below 90.98 would see a continuation of the downtrend that has been in place for much of the year. Source: xStation

On the other hand, there may be an inverse head and shoulders formation starting to develop. This is a classic reversal signal and with the head coming in at the low of 90.98 and the possible neckline at 94.05, a break above the neckline would target a move higher to 97.12. 

 An inverse head and shoulders could be forming on the USDIDX. Source: xStation

 The recovery in the US dollar in recent trade has threatened the Gold price which had earlier hit its highest level of the month. 1292 is a potentially key level to watch on a closing basis and a failure to end the day above 1292 could be seen as a false break higher. Price has broken above a falling trendline from the September highs but longs may want to see a close above 1292 for further confirmation that the latest move lower has ended. 

 Gold is testing the key level around 1292 following the release. A close above here would further support the recent recovery. Source: xStation