How to trade when the market ignores data

EUR/USD

Key zone: 1.1700 - 1.1800

Buy: 1.1750 (on strong positive fundamentals) ; target 1.1950-1.2000; StopLoss 1.1680

Sell: 1.1650 (after retesting the 1.1750 level) ; target 1.1500; StopLoss 1.1720

Last week was overloaded with macroeconomic data: key reports were released for the United States, the eurozone, and the United Kingdom, and the three largest central banks announced interest rate decisions. Nevertheless, the market remained almost immobile, which looks illogical from the standpoint of a classic fundamental reaction.

One of the reasons is the contradictory nature of the data and the absence of a single, coherent signal. However, even under these conditions, several factors looked unambiguous:

• key U.S. reports (NFP and CPI) came out in the same direction;
• the Bank of Japan raised rates to the highest level in 30 years — throughout this entire period, Japan had been one of the main sources of global dollar liquidity;
• the Federal Reserve and the Bank of Canada launched new quantitative easing programs.

Under such a market configuration, it would be logical to expect rising risk appetite and a weaker dollar. Instead, participant behavior turned out to be the opposite: positions in risk assets are being closed, any attempt at growth is met with selling, and price action increasingly resembles preparation for a global crisis rather than a rally.

Why CPI did not become a growth driver

The U.S. inflation report was interpreted by the market in favor of the dollar not because it cancels future rate cuts. The reason is deeper: the release itself was methodologically distorted.

Data collection started later than usual due to the prolonged shutdown, and some indicators were calculated using statistical assumptions and carryovers of past values. Formally, the figures looked impressive:

• CPI 2.7% YoY versus an expectation of 3.1%;
• Core CPI 2.6% versus an expectation of 3.0%.

In effect, inflation “returned” to March 2021 levels — something the market did not anticipate. However, the details of the BLS report reveal the real picture.

Due to the absence of October data for several components, the bureau used artificial estimates. A key example is the shelter category. For it, the October reading was assumed to be 0%, despite housing accounting for about 35% of total CPI. Zero inflation in the largest component automatically reduced both the headline and core indices.

The PCE issue and the political factor

The market once again did not receive November PCE data. The Bureau of Economic Analysis postponed the release for the second time: the first delay was related to the shutdown, while the second has a political nature.

The reason for the delay is obvious. If the most up-to-date inflation indicator used by the Fed had shown that the idea of zero price growth in key categories, including housing, was not confirmed, the narrative of “victory over inflation” would have come under question. Therefore, the publication was postponed, giving the market time to forget the positive CPI, so that expectations could later be adjusted through less comfortable PCE data.

Market reaction and capital behavior

November labor market and inflation reports did not change the fundamental picture. Market participants remain almost certain that the Federal Reserve will keep interest rates unchanged at the January meeting.

As a result, the market chose not a trend move, but capital redistribution. All attempts by speculators to push major currencies beyond long-term ranges are offset by capital flowing into alternative assets — gold and cryptocurrencies.

Until year-end, there are no strong fundamental triggers capable of launching a reversal or a full-scale correction. However, a thin market, low liquidity, and distorted statistics make the current range especially dangerous: any local move may be sharp, short-lived, and painful for poorly protected positions.

So we act wisely and avoid unnecessary risks.

Profits to y’all!