Home Forex US inflation data in focus

US inflation data in focus

by SuperiorInvest

The dollar has been moving since last week as investors awaited August inflation data due out today from the US Bureau of Labor Statistics.

Month-on-month change in consumer price measurements Source: wsj.com

Although, the US CPI is targeted in the near futurecomments from hawks Bullard and Waller they even indicate signs of a slowdown in price pressurewith unlikely to change its inclination to further aggressively strengthen by 75bp next week. On the other hand, several other officials noted concerns about too much tightening amid a long delay in the policy’s effects. There, other data this week including retail sales, manufacturing and manufacturing may support their views if the data is weaker than expected.

HFM Economic Calendar Source: https://www.hfm.com/sv/es/trading-tools/economic-calendar

When it comes to data, headline CPI for August should fall -0.1% along with a 0.4% increase in core. This would lead to a slide in the prime 12-month rate to 8.0% y/y 8.5% in July, with core rising to 6.1% y/y from 5.9% earlier, and respective 40-year highs of 9.1% y/y and 6.5% y/y in March. For retail sales, we expect no change in either headline or ex-auto metrics for August. Manufacturing should also be flat, while the Empire State and Philly Fed indexes should be in contractionary territory.

The previous month saw the largest drop in transportation costs due to a sharp drop in oil prices. On the other hand, there was an increase of 1.1% in food and beverages now to 10.5% y/y (expected to increase by 1.6% for August and leave it at 12.1%) and 0.5% in housing , household items and medicines. now at 7.4%, 10.1% and 4.8%. The change in consumer spending patterns (which fell from 1.8% to 1.5% in the second quarter (2-3% pre-pandemic)) was focused on essential spending.

CPI United States July 2022 Source: datosmacro.expansion.com

Meantime, The Fed continues its firm commitment to reducing inflationwhich has led to continued monetary tightening with strong interest rate rises, most recently to 75bp, and as Powell rightly mentions, “will continue with a tight stance for some time” until the 2% target is reached.

In general, the expected data would signal that the Fed’s efforts have been successful in reducing inflation. Although it is very likely that it will fall a bit more in August, it is not known whether it will continue as the decline was not across the board as there were also gains in some sectors and it is unlikely that the FOMC will relax its monetary policy until the target level is reached (which is still a long way off) for which we could expect a third straight increase of 75bp on the 21st of this month.

Source of rate change history: Forbes.com

Technical analysis

USDIndex D1 – $108.23

The USDIndex it maintains a steady uptrend with small dips and large bullish jumps after previous interest rate hikes (indicated by red vertical bars). The price peaked at 110.76levels not seen since 2002, however, failed to sustain 110.00 level and dropped to 107.77 today represents the lowest level this month. However, the greenback remains strong.

Thanks to the bearish divergence on the MACD and the price history since the last rate hike, the price is in a retracement awaiting the Fed’s decision, now with immediate support at 108.00 when testing the 20-day SMA at 108.62followed by the 50-day SMA at 107.38. There is stronger support on a psychic level 105.00.

On the other hand, if bullish sentiment continues, it should recover and hold 110.00followed by resistance at 78.6% monthly Fibo at 110.54. Breaking it could open the door to 112-114 territory.

USDIndex D1

Other assets:

  • $500 + 1.06% – US100 +1.27% – $30 + 0.72%
  • XAGUSD +5.12% – XAU/USD +0.43%
  • USOil +2.15% – UKoil +2.14%

Click here to access our economic calendar

Aldo Zapien and Andria Pichidi

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