US Inflation In Focus This Week
Geopolitical Tensions Boosting Dollar
The US Dollar is on watch this week as trader brace for the latest US inflation data due on Wednesday. On the back of softer-than-forecast September jobs data, market pricing for an October hike has fallen to less than 20% from highs of around 70% two weeks ago. Despite this, USD has remained well bid, bolstered by weakness in other key FX rates. This weakness, in EUR and JPY, for example, is fuelled by a scaling back of central bank tightening expectations amidst the recent fall in energy prices. Ongoing geopolitical tensions are also keeping USD supported via safe-haven demand: the continued conflict between Ukraine and Russia as well as the escalating conflict between the Houthis and Saudi Arabia are each driving investors back into USD for now.
Inflation Forecasts
Looking ahead this week, September CPI will be the headline release to watch. The market is looking for annualised headline CPI to rise to 3.6% from 3.4% prior. If such an increase is confirmed, and particularly if we see an upside surprise, USD is likely to push higher as traders rebuild October rate-hike expectations. If both core and headline inflation are seen rising, on a monthly basis also, this could make October a live meeting once again with USD set to breakout accordingly. On the other hand, if data undershoots on Wednesday, this should effectively rule out a near-term rate hike, with USD set to cool as a result.
Technical Views
DXY
For now, the index remains atop the 101.91 level and while this price holds as support, focus is on a continuation higher towards the 103.20 level next. If we do break back below 101.91, the retest of the broken bear trend line from summer highs will be first support to watch ahead of the bull channel lows and the 100-level. Medium term, the bull outlook remains while above 100.
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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.