US CPI growth expected to tick higher; Fed hike outlook eyed – Forex News PreviewPosted on May 9, 2018 at 9:16 am GMTAndreas Georgiou, XM Investment Research Desk
The US will see the release of inflation figures on Thursday at 1230 GMT. Price pressures are forecast to have accelerated in April, with headline CPI projected to touch its highest since February 2017 on an annual basis. The numbers do not pertain to the Federal Reserve’s preferred inflation measure, but still they will be closely watched by market participants; a beat could stoke market expectations for the delivery of four interest rate increases in total by the US central bank in 2018, providing support to the greenback.
Headline inflation is expected to expand by 0.3% m/m, after contracting by 0.1% in March, and grow by 2.5% y/y, above March’s 2.4% and at its highest in fourteen months. Rising oil prices are anticipated to be a factor contributing to the uptick in headline CPI. Meanwhile, core CPI, the measure that excludes volatile food and energy items, is projected to grow by 2.2% – a feat last achieved in February of last year – following March’s 2.1%.
FOMC policymakers might be willing to accept inflation overshooting past their annual target without steepening their interest rate outlook, or at least this was the market’s interpretation upon completion of last week’s meeting by the Fed; something which was also echoed by Atlanta Fed President Raphael Bostic (a voting member within the FOMC in 2018) in remarks made on Monday. This development led market participants to scale down their expectations for three additional 25bps interest rate increases during the year, something which would put the total number of moves in 2018 at four. However, the odds for a third additional increase are back on the rise according to Fed fund futures, currently standing at 30%. Stronger-than-forecasted readings out on Thursday could well push that probability even higher, consequently boosting the US currency.
Focusing on dollar/yen, resistance to advances in the event of a positive surprise in the numbers might come around the 110 handle, given that first the area around the 50% Fibonacci retracement level of the November 6 to March 26 downleg at 109.63 is more conclusively broken. The region around 110 includes the current level of the 200-day moving average at 110.19, as well as last week’s three-month high of 110.02. Further above, the range around the 61.8% Fibonacci mark at 110.84 would be eyed next. Conversely, a data miss would likely exert selling pressure in USDJPY. Support to declines could come around the 109 round figure and, in case of sharper losses, from the area around the 38.2% Fibonacci level at 108.43.
Prints on April factory price inflation, as gauged by the producer price index (PPI), will be made public on Wednesday (1230 GMT). These too can spur positioning on dollar pairs, including of course the aforementioned (USDJPY). Important data out of Japan, will include March’s current account balance due during Thursday’s Asian session. However, it should be kept in mind that developments on the geopolitical front might turn out to be another driver of movements in the dollar/yen pair this week, especially in light of the Japanese currency’s safe-haven status. In this respect, yesterday, President Trump decided to withdraw the US from the 2015 nuclear deal with Iran.USDJPY
Legal Disclaimer: The material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instruments. XM accepts no responsibility for any use that may be made of these comments and for any consequences resulting in it. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. The research and analysis does not involve any specific investment objectives, financial situation and needs of any specific person who may receive it.
It has not been prepared in accordance with legal requirements designed to promote the independence of research, and as such it is considered to be marketing communication. Although we are not specifically constrained from dealing ahead of the publication of our research, we do not seek to take advantage of it before we provide it to our clients. We aim to establish, maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. We operate a policy of independence, which requires our employees to act in our clients’ best interests and to disregard any conflicts of interest in providing our services.
CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losing all of your invested capital, so please make sure that you fully understand the risks involved.