Jump to content

All eyes on US CPI data tonight: US Dollar Index, Straits Times Index, EUR/USD

Recommended Posts

Major US indices gained for the fourth straight session overnight, but market participants still withheld some cautiousness ahead of the US CPI data release.

USSource: Bloomberg
 Yeap Jun Rong | Market Strategist, Singapore | Publication date: Tuesday 13 September 2022 

Market Recap

Major US indices gained for the fourth straight session overnight, but market participants still withheld some cautiousness ahead of the US Consumer Price Index (CPI) data release as displayed in the declining volume on the recent up-move, along with a 5% rise in the VIX overnight. Sector performance showed a clear lean towards the energy and rate-sensitive growth sectors, despite Treasury yields ticking higher. The US 10-year is now hovering at around 3.37%, its highest since June this year. The recent equities rally appears to take its cue from its inverse relationship with the US dollar, with further retracement in US dollar providing a catalyst for markets to cheer. That said, considering that the upward trend for the dollar remains intact on the series of higher highs and higher lows, ahead may bring about a moment of reckoning as the US dollar stands inches away from the 107.20 level. This is where an upward trendline seems to lie in coincidence with its 50-day moving average (MA) and holding above this level may reinforce its upward bias and serve as eventual headwinds for risk assets.


US dollarSource: IG charts


Ahead of the US inflation data, market bulls may be riding on the hopes that with an almost-definite 75 basis-point (bp) hike being priced (92% probability) for the September Federal Open Market Committee (FOMC) meeting, along with a 4% terminal rate, it will take a lot more from the upcoming CPI data to drive a more hawkish shift in expectations. Month-on-month (MoM), current consensus is for August US headline inflation figure to show a decrease of 0.1% from July but the core aspect is expected to maintain at 0.3% growth. Year-on-year (YoY), the core aspect is expected to tick higher to 6.1% from 5.9%. This scenario may seem to present a mixed situation, where inflation may have likely peaked but could be seem persistent in heading towards the Federal Reserve (Fed)’s eventual target of 2%. This is also presented in the New York Fed’s Survey of Consumer Expectations overnight. While the median one-year and three-year-ahead inflation expectations both reflected steep decline in August, it stands at 5.7% and 2.8% respectively. Further pushback from the Fed could be likely but for now, with the Fed blackout period in place, market bulls may be hoping to see an underperformance in the upcoming inflation data to continue on its rally.

Asia Open

Asian stocks look set for a positive open, with Nikkei +0.38%, ASX +0.55% and KOSPI +1.88% at the time of writing. Being back online from its holiday, the outperformance in KOSPI is largely due to some catch-up gains, which could be mirrored in the Chinese indices later as well, with further gains in Wall Street continuing to provide a positive backdrop for the risk environment in the region. The release of consumer confidence data out of Australia translated into a mixed initial reaction in the ASX 200, despite a bounce in consumer sentiment from its nine-month losing streak. While the improvement could be brought on by the strength in the labour market, further policy tightening is set to continue, which could lead to some shrugging off of economic resilience with the looming US inflation data up ahead.

On the other hand, from the latest SGX fund flow data, the ramp-up in rate hike expectations last week has served as tailwind for our local banks, with the financial sector finding renewed net institutional fund inflows of around S$270 million last week. The three banks accounted for more than 40% of the Straits Times Index (STI) and thus far, the index has managed to defend its 3,200 level, with a break above a descending wedge pattern late last week. However, upcoming sentiments will take its lead from global risk environment, which will be heavily steered by the US CPI data. Any bullish action above the 3,320 level could drive the formation of a new higher high and reiterates its upward trend.


STISource: IG charts


On the watchlist: EUR/USD hanging at upper channel trendline resistance

Despite some weakness in the US dollar overnight, the EUR/USD continues to hang at an upper trendline resistance of a descending channel pattern (in place since February this year), in coincidence with its 50-day MA. The spinning top formation suggests some indecision for now, as market participants continue to digest the recent European Central Bank (ECB) meeting, which displayed clear determination by policymakers to prioritise inflation over growth. The channel resistance remains a key line to watch, considering that it has weighed on the pair on at least five occasions through this year and any upward break could potentially be looked upon as a sign of a longer-term reversal in bearish sentiments. The onus will now fall on the upcoming US CPI data, which will dictate US dollar moves ahead. Any break above the channel trendline resistance may leave the 1.037 level on watch next.


EUR/USDSource: IG charts


Monday: DJIA +0.71%; S&P 500 +1.06%; Nasdaq +1.27%, DAX +2.40%, FTSE +1.66%

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
    • Total Posts
    • Total Members
    • Most Online
      10/06/21 11:53

    Newest Member
    Joined 03/02/23 14:20
  • Posts

    • Breaking News - US NFPs Surge to 517k vs 185k Expectations, Unemployment Rate Falls to 3.4% Feb 3, 2023 | DailyFX Nick Cawley, Senior Strategist Source: Bloomberg   US DOLLAR (DXY) PRICE AND CHART ANALYSIS US NFPs smash expectations in January. US dollar picks up a bid. Total nonfarm payroll employment increased by 517k in January, and the unemployment rate fell to 3.4% according to the US Bureau of Labor Statistics. Hourly earnings also beat expectations. Last month’s NFP figure was also revised higher from 223k to 260k. ‘ Job growth was widespread in January, led by gains in leisure and hospitality, professional and business services, and health care. Employment also increased in government, partially reflecting the return of workers from a strike.’     The Federal Reserve hiked interest rates by 25 basis points at this Wednesday's FOMC meeting, a move fully expected, and priced in by the market. Fed chair Powell, while continuing to stress that further rises are data dependent, added a new word to his FOMC vocabulary, disinflation, sending the US dollar lower and risk markets sharply higher. Powell said that it is a ‘good thing that disinflation so far has not come at expense of labor market’, adding that ‘this disinflationary period is in early stages’. While chair Powell will still keep tightening monetary policy to break the back of inflation, financial markets are now pricing in just one more 25bp rate hike at the March meeting before a pause in Q2 and Q3, while rate cuts are now seen in Q4. FOMC Hikes Rates 25 bps as Expected, Leaves Open Further Hike Expectations The US dollar (DXY) picked up a bid post-release rising around 60 cents to 101.90 US DOLLAR (DXY) DAILY PRICE CHART – FEBRUARY 3, 2023     What is your view on the US Dollar – bullish or bearish?
    • Special Coverage of the Non-Farm Payrolls pre-market release with Angeline One & Josh Mahoney.  
    • EUR/USD, GBP/USD and USD/JPY head lower after central bank volatility This week has seen risk-off sentiment dominate the FX market, with EUR/USD and GBP/USD falling back towards Fibonacci support. Meanwhile, the USD/JPY downtrend looks to finally kick in once again.  Joshua Mahony | Senior Market Analyst, London | Publication date: Friday 03 February 2023  EUR/USD turns higher from Fibonacci support EUR/USD has managed to maintain its consistent uptrend despite the central bank fuelled volatility seen over the course of this week. Today brings a final hurdle to overcome in the form of the US jobs report, with the last pullback bringing a potentially advantageous location to look for longs in EUR/USD. With the price having dropped into a deep Fibonacci retracement level over the course of the past 24 hours, this is a notable area where the bulls could come back in to maintain the bullish trend. With that in mind, long positions remain in favour unless we see the price fall back below the $1.0802 swing low. Source: ProRealTime GBP/USD reverses back towards Fibonacci support GBP/USD has been hit hard over the past 24 hours, with the pound particularly coming under pressure in the back end of this week. While that decline has been relatively convincing in terms of momentum, the wider bullish trend remains in play. The pullback into the 76.4% Fibonacci support level of $1.2172 highlights the potential for a bullish turnaround from here. As such, keep an eye out for how the pair respects this Fibonacci level, with a break below that point signalling the potential for a continuation of this decline towards the key $1.2086. Meanwhile, watch out for a move up through the 80 threshold on the stochastic oscillator as a signal that the bulls are coming back into dominance. Source: ProRealTime USD/JPY breakdown points towards further downside USD/JPY has finally given way after a period of consolidation that took the price up towards trendline resistance. The ability to maintain that wider bearish trend brought expectations of another leg lower, which appears to be in the offing. The decline through $1.2902 support brings an end to the recent trend of higher lows seen earlier this week. As such, we appear to have set in motion a potential fresh bearish phase, with a negative outlook holding as long as the price does not rise up through the $1.3055 resistance level established on Monday. Until that happens, the bears look likely to remain in charge. Source: ProRealTime
  • Create New...