U.S. Inflation Continues to Swell, Eurozone CPI up Next
USD/JPY Prints Fresh 32-year High, EUR/USD Lifts off Lows.
The inflation data released last week exceeded expectations once more, showing that the Fed’s efforts are unsuccessful at least until now. Despite an aggressive pace of the rate hikes, the CPI increased 0.4% from the previous 0.1% and the Core CPI posted a 0.6% change, surpassing the 0.4% forecast.
Galloping inflation means that the Fed will likely continue to raise the rate for longer and possibly in larger steps, which puts the US Dollar in the driving seat. The greenback climbed to a 32-year high against the Yen, on the back of the Bank of Japan’s loose monetary policy but the moves were limited against the Euro and Pound.
At the time of the CPI release, after a brief drop, EUR/USD turned on a dime and traveled more than 160 pips north. This came as a surprise for many, creating panic and taking out Stop Loss orders in the process. The Final Eurozone CPI is due for release this week and it will be interesting to see if the market will react similarly or if the impact will be muted.
Key Data for the Week Ahead
The economic calendar is light this week, with just a few potential market movers. Monday at 12:30 pm GMT, the Empire State Manufacturing Index will be released, showing the opinions of about 200 manufacturers from New York State about the general business conditions.
Wednesday at 9:00 am GMT we take a look at European inflation with the release of the Eurozone Final CPI and Core CPI. While the importance of these indicators is still very high, the most important versions were already released about 15 days earlier: the CPI Flash Estimate and Preliminary CPI. The Final version can post some surprises but the probability is rather low. The expected readings are 10% for the CPI and 4.8% for the Core versions (yearly figures, the same as previous).
Thursday’s main event will be the Philly Fed Manufacturing Index (12:30 pm GMT) and Friday at 1:10 pm GMT, FOMC Member Williams (President of the Federal Reserve Bank of New York) will speak at the Columbia-Greene Community College. The event is marked as low-impact on the calendar but surprises can happen.
Technical Outlook – EUR/USD
The pair is currently trading at 0.9750, very close to pre-CPI levels. We could say that the choppy movement that followed last week’s CPI release is nullified in a way and that the dollar will continue its assault against its counterparts.
The price has bounced twice at the middle Bollinger Band and it looks like the Euro bulls lack the necessary strength to stage a break. If we don’t see a strong move up soon, the pair is likely headed for Thursday’s low at 0.9630, followed possibly by a drop into the support around 0.9560.
If we get a Daily close above the Bollinger middle band, the pair is likely to continue on a bullish path in the short term. In that case, a potential destination will be the long-term bearish trend line and the upper Bollinger Band.
