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Inflation Expectations
All eyes are on the US Dollar today as traders brace for the latest US inflation data due this afternoon. Last time around, inflation was seen falling back to 3.1% from 3.4% prior, a little above the 2.9% the market was looking for. Today the market is looking for CPI to have remained at 3.1% last month. If confirmed, this should underpin the Dollar for now, downplaying near-term rate-cut risks and instead raising concerns over stickiness in inflation at current levels. However, if CPI undershoots forecasts, particularly if we fall back below the 3% level, this should be firmly bearish for USD, encouraging traders that inflation is once again turning lower and opening the door to H1 Fed rate cuts.
Market Impact
Friday’s jobs report was an interesting one because although we saw a beat on the headline NFP reading, wage growth was sharply lower at 0.1% from 0.6% prior. If this downturn carries through into today’s inflation data, the Dollar is likely to break below local support, fuelling a surge in risk appetite which should send stocks, commodities and crypto higher through the rest of the week. On the other hand, if we see an upside surprise today, this will likely see a sharp unwinding of recent risk-on trades as USD turns firmly higher and H1 rate-cut chances fade.
Technical Views
DXY
Following the move sub-103.48, DXY has stalled for now into a test of interim support at the 102.49 level. With momentum studies bearish, risks are skewed towards a break lower and a test of the 101.22 level next. However, should we climb back above 103.48 today, focus will shift back to 104.95 again.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.