The dollar tumbled on Wednesday as news that U.S. inflation struck a 39-1/2-year high nL1N2TR1QE and another Fed warning of rate hikes and balance sheet reduction nS0N2PY031 came largely as expected to investors that spent last year steeling themselves for tightening in 2022.
The dollar index broke below its uptrend line support from June and nearby cloud base and 50% Fibo supports nL1N2TS1CK, while EUR/USD shot up out of its seven-week consolidation range that followed a Fed-inspired slide, threatening to reverse that downtrend.
The fall in Treasury yields beyond two-year maturities -- the primary Fed policy horizon -- after the mostly above-forecast CPI readings suggests investors believe the combination of Fed hikes already priced in and balance sheet reduction will tame inflation.
EUR/USD gained 0.62% piercing the downtrend line from June at 1.1436 and the 50% Fibo and daily cloud top at 1.1439.
A close above there could signal the end of the preceding primary downtrend nL1N2TS1R0.
The next major targets are by 1.1500.
USD/JPY was down 0.6%, with its biggest drop since the Nov.
26 Omicron risk aversion plunge, as 10-year Treasury-JGB yield spreads fell and prices hit their lowest in 12 sessions after slicing through numerous supports.
Next support is at 114.445, the weekly tenkan and 50% Fibo of the November-January recovery from Omicron angst to five-year highs.
Weekly charts remain bearish and show risk of a fall down to 112.54 where the weekly kijun, lower 10-week Bolli and November's lows coincide nL1N2TS1O5.
Sterling gained 0.5%, extending the sharp recovery from December's 1.31615 nadir since the BoE kicked off its rate-hiking cycle.
The downtrend line since July, 200-DMA and 161.8% Fibo off December's base are at 1.3722-37.
With the BoE seen hiking rates at the Feb.
3 meeting nL1N2TS1EX, before a pending first Fed rise in March or May, the main concern for sterling's uptrend is a possible pullback from the key hurdles nearby to correct heavily overbought daily RSIs.
Australian and Canadian dollars gained 0.98% and 0.58%, respectively, the former clearing its flat cloud top and 50% Fibo by recent highs.
Bitcoin and ether benefited from the dollar weakness, high U.S. inflation and mostly higher equities, with support from daily RSIs rebounding from oversold readings.
Jobless claims and Fed Governor Lael Brainard's testimony before the Senate Banking committee for her nomination for promotion to a four-year term as vice chair feature among Thursday's highlights.
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