Dollar Shoots for 5-Week High, CPI in the Spotlight
Buy the Dip: Is the Pullback Over?
In a recent interview, Fed Chair Jerome Powell emphasized the importance of economic data going forward, which adds some extra spice to this week’s CPI. During a discussion hosted by the Economic Club of Washington, the Chairman stated: The reality is that we’re going to react to the data, if we get stronger data, we could raise rates higher than we expect.
With those comments in mind, it’s easy to see why Tuesday’s Consumer Price Index will keep traders glued to their screens. This release more often than not sends ripples across all US Dollar pairs but this time it may bring even more excitement due to Powell’s comments.
Key Data for the Week Ahead
Tuesday at 1:30 pm GMT the U.S. Consumer Price Index comes out, showing changes in the price that consumers pay for the goods and services they purchase. The Core version (monthly) is expected to show an increase from 0.3% to 0.4% while the headline CPI is expected to rise from -0.1% to 0.5%. The forecast for the yearly CPI is a drop from 6.5% to 6.2%.
As far as the forecast goes, we are in for a mixed set of data, with the monthly figures going up and the yearly CPI going down. It will be interesting to see how the market interprets the actual numbers.
Wednesday at 1:30 pm GMT we take a look at the U.S. Retail Sales and the Core version of the indicator, as well as the Empire State Manufacturing Index. On the same day, the European Commission will release the Economic Forecasts for member states. The exact time of the release is unknown.
The U.S. Producer Price Index will be released Thursday at 1:30 pm GMT, showing changes in the price charged by producers for their goods and services. The indicator has inflationary implications because a higher producer price translates into a higher consumer price.
Technical Outlook – EUR/USD
The pair is currently in pullback mode after the significant move up that originated at 0.9560. The bears are currently dealing with a support zone created by several factors: the lower Bollinger Band, the horizontal support at 1.0635, and the 50-day Moving Average which has just been broken, albeit not decisively.
If this confluence zone is broken, the next destination will most likely be the previous low at 1.0500, which is, at the same time, a psychological level (big round number) and a technical one.
A move back above the 50-day MA and 1.0775 would indicate that the pullback is over and that the bulls are getting ready to step in. The inflation data that is due for release Tuesday will probably be the determining factor for this week’s price action.
