The most important markets in Europe and the futures contracts in the United States are jittery ahead of April US CPI data to be released today. Investors prefer to exit risky positions. The data will probably be the monetary policy confirmed by the Fed. Currently, traders reckon with a 25% chance of one rate hike by the Federal Reserve on June 14, and that expectation is unlikely to change unless the actual release differs significantly from the expected numbers. The consumer price index is expected to be released at 2:30 p.m. Here are the details:
- Headline Inflation (YoY): Forecast: 5.0%. Previously: 5.0%.
- Core Inflation (YoY): Forecast: 5.5%. Previously: 5.6%.
- Headline inflation (mom): forecast: 0.4%. Previously: 0.1%.
- Core inflation (mom): forecast: 0.4%. Previously: 0.4%.
If the expected inflation data coincides with the actual release, it would roughly match a PCE based on historical correlations. That will give the Fed much reassurance, as it has set an estimate of 3.3% for the latter this year. The Fed’s Williams said he expects inflation to fall to 3.25% this year and reach a 2% inflation target by 2025. However, he also said he sees no reason to cut interest rates this year.
The chart below shows the contributions to headline inflation. In the last cycle of inflation growth, we can see the discrepancies as to which components had a significant impact on headline inflation. It is worth noting that the rise in inflation was triggered by the transport and clothing sectors. These prices have already weakened. Thereafter, housing and food prices made the largest contribution to the overall level. On a positive note, there were signs of cooling for these components as well. Private data has already shown that rental price increases are beginning to slow.
financial markets
The US dollar has appreciated against most major currencies ahead of the CPI release. The US Dollar Index has entered a consolidation phase after two consecutive days of better performance and later in the day CPI data release is expected to increase volatility.
EUR USD experienced a downward correction and closed below 1.1000. Despite hawkish comments from European Central Bank (ECB) members supporting the euro, the currency pair is still trading below the 1.1000 level, posting a 0.12% decline.
EUR USD in the H1 chart. Source: xStation5 by XTB
The S&P 500 (US500) is currently trading at 4,128 points, down 0.2%. Recent price action shows a rejection of the 4,150 resistance zone, followed by a subsequent drop to the current levels. As the CPI data is due to be released, the price falls. The next support level to watch is 4100 points while the upper resistance levels are at 4150 and 4200 points respectively. Traders should closely monitor price action around these levels for possible shifts in market sentiment. A higher volatility is to be expected in the run-up to the publication.
US500 in the H1 chart. Source: xStation5 by XTB
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