Yesterday's "tempest in a teapot" is an opportunity to profit from a volatility spike

11 November 2022 193
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The U.S. consumer price index data released yesterday at the start of the U.S. session rattled the markets.

The actual inflation figures turned out to be much lower than expected. 

This applied to both "year-on-year" and "month-on-month" indicators.

 

 The markets received such data as a signal for the Fed policy softening, and as a consequence, it led to the impulse for the sharp weakening of the U.S. dollar.

 

But things are not so clear. And that is why:

 

The Fed is a very inert institution; its policy reversals are long, slow and a bit late. It takes a three- to four-month period of "soft" indicators for a turn towards easing. So in other words, the December, January and February actual inflation data needs to be constantly below the forecast for the Fed to declare a possible reversal.

 

Hence yesterday's impulse is "emotional" rather than fundamental, and the USD currency pairs are likely to return to their previous levels after their sharp moves.

 

Therefore, yesterday's volatility breakout gives us a good opportunity to make profit on the return movement of quotations.


 

This content is for informational purposes only and is not intended to be investing advice.

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