US CPI inflation will be key for major markets
- US CPI eyed: Inflation is expected to fall year on year.
- USD near-term outlook will be key: The USD has performed better on major forex since the US Nonfarm Payrolls. US CPI will drive the next leg.
- A rebound on Wall Street is holding: European indices have ticked higher, whilst US futures are consolidating
- Watching gold and silver too: Commodities are mixed, with gold higher, silver lower and oil also slipping.
Near-term moves will be driven by US CPI
There is an air of anticipation coming into today’s session. The US CPI inflation data could be a springboard for the next near-term leg in major markets.
The outlook has shifted in recent sessions (at least since the Nonfarm Payrolls report earlier in the month).
Fed Chair Powell has suggested that the “deflationary process has begun”. However, the data could mean that the Fed needs to remain hawkish.
As bond yields have pushed higher the anticipation has grown that a tick higher in inflation could be the fly in the ointment for traders positioning for the Fed pivot.
The consensus expectations for today’s US inflation for January:
- US CPI MoM to increase by +0.5%. This would see YoY CPI falling to 6.2% (from 6.5% in December)
- US Core CPI MoM to increase by +0.4%, with YoY Core CPI down to 5.5% (from 5.7%).
US yields and USD are ready to leap
If inflation comes in hot today, there is likely to be a significant reaction on Treasuries and the USD.
The US 2-year yield is testing a key barrier at 4.57%. If this is broken it could open the floodgates for a near-term jump that could see the 4.88% November high tested.
A jump in yields would give fuel to the USD rebound. The Dollar Index has been testing the big medium-term resistance barrier of 103.40/104.65 in February.
Hot inflation today would drive a move on the Dollar Index above 104.00. The effect of this would be seen across major markets.
Also watching Fed speakers today
Markets will be moving on the US CPI inflation data. However, in the wake of the data, there are four Fed speakers due. Their opinions on what the data means will be watched.
The speakers are scattered throughout the US session:
- Thomas Barkin (hawkish, a voter in 2024) speaks at 14:30 GMT
- Lorrie Logan (centrist, a voter in 2023) speaks at 16:00 GMT
- Patrick Harker (leans slightly hawkish, permanent voter) speaks at 16:30 GMT
- John Williams (centrist, a voter in 2023) speaks at 19:05 GMT
With a good range across the spectrum, the views today will be a good gauge of where the FOMC is thinking on inflation and rate hikes.
USD jumping would pull gold and US equities lower
The pair has been consolidating in the past week.
- The downside move has found buyers to support around 1.0655/1.0670.
- However, resistance is building at 1.0765/1.0800.
- The market has been consolidating between the rising 55-day moving average and the now drifting lower 21-day moving average.
The risk is a hot US CPI would continue the pullback from the highs. Below 1.0655 would open the way towards a test of the key higher low at 1.0480.
Gold has also drifted back from recent highs and has moved into reverse. It is a similar-looking chart to EURUSD.
As the uptrend channel has been broken, the bottom of an old pivot band $1850/$1875 is now being tested. The risk of a continued correction is growing.
- Below $1850 opens the next support band between $1810/$1825.
- The 55-day moving average has previously been a key gauge but is being tested again
- The daily RSI is struggling under 50 and is looking susceptible to further downside potential.
S&P 500 futures
For now, US futures are still holding up well since pulling lower from the recent multi-month high of 4208. A retreat to the bottom of a six-week uptrend channel found buyers yesterday.
- A strong bullish one-day candlestick was encouraging yesterday.
- The daily RSI remains positively configured, around 60.
- The rising 21-day moving average remains supportive.
For now, weakness has been a chance to buy. However, the near to medium-term outlook could be jolted if US CPI comes in strong.
The support at 4007/4035 could be tested. A move below there would suggest a deeper retreat.
Support and resistance levels for USD/JPY, Silver, DAX Index, and more
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