US CPI Clears Subdued Expectations as USDNOK Bull Flag Nears Support

With global central banks collectively shifting their focus to inflation, or the lack thereof, traders were awaiting today’s US CPI release with bated breath. Expectations were very subdued heading into the report, with economists expecting -0.1% contraction m/m (or 1.6% on a y/y basis), and while the actual CPI release was hardly stellar, it did manage to clear this low hurdle. October CPI printed at 0.0% m/m (1.7% y/y), while Core CPI came out at 0.2% m/m as expected.

Any time traders are interpreting economic data, they filter it through the perspective of how it will impact central bank actions. Yesterday’s FOMC minutes highlighted that the central bank expected inflation would edge lower in the near term, and that the return to 2% y/y inflation would be “quite gradual.” From a bigger picture perspective, today’s report does nothing to change this view, and the reaction in the US dollar has been extremely limited as a result. EURUSD ticked down a few weeks in the wake of the report, while USDJPY initially bounced to 118.40, though both of those moves are now fading as we go to press.

Technical View: USDNOK

Stepping away from the well-trodden major currency pairs, the less popular USDNOK is showing a clear technical setup today. Since peaking at a 5.5-year high above 6.90 earlier this month, rates have been gradually pulling back for the past two weeks. The controlled pullback, after the strong surge to close October, creates a clear bullish flag pattern on the daily chart. This classic technical pattern suggests that the dip is more likely profit-taking on the part of bulls, rather than an outright reversal to bearish momentum.

The secondary indicators generally support this view. The MACD has dropped below it signal line, but both measures remain well above the “0” level, signalling that the overall momentum in the market remains to the topside. Meanwhile, the RSI has pulled back from overbought territory, potentially clearing the way for another leg higher into the end of the year.

If USDNOK manages to break above the near-term bearish channel, a strong continuation back to the 5.5-year high or the psychologically-significant 7.00 level would be favored. Meanwhile, only a break beack below the 20-day MA and bullish trend line near 6.68 would shift the medium-term bias back to neutral.