Week-Long Wait for Inflation Data Gives Traders Pause

US Dollar: Mixed Jobs Data Sparks Volatility

The Non-Farm Payrolls report released Friday showed disappointing numbers, which came more than 50% lower than analysts’ consensus: anticipated 553K; actual 210K. The Average Hourly Earnings also missed expectations (anticipated 0.4%; actual 0.3%) but the Unemployment Rate surprisingly dropped to 4.2%, which is a 21-month low.

Despite this mixed bag of data, the numbers balanced themselves out and the US Dollar closed the day near its opening price, resulting in a Daily Doji candle. The week ahead is lackluster in terms of economic data, with the main event arriving late in the week: the U.S. inflation data.

Key Events for the Week Ahead

First up we have the German ZEW Economic Sentiment, scheduled for Tuesday at 10:00 am GMT, and expected to drop from 31.7 to 25.9. This is a leading indicator of economic health that is derived from the opinions of about 300 German institutional investors and analysts. The survey’s importance comes from the fact that professional investors and analysts need to stay informed about the economic situation due to their jobs, thus their opinion carries weight and can be an early signal of future activity.

Wednesday at 8:15 am GMT, ECB President Lagarde will speak at the Fifth Annual Conference of the European Systemic Risk Board. However, her speech is pre-recorded, so there will be no audience questions, which lowers the importance of the event.

The last event of the week and the most important will be the release of the U.S. CPI and Core CPI, scheduled for Friday at 1:30 pm GMT. The Consumer Price Index is one of the main gauges for inflation and shows changes in the price that consumers pay for a basket of goods and services; on the other hand, the Core version excludes food and energy from the calculation because these tend to be more volatile. The expected change is 0.7% (previous 0.9%) for the CPI and 0.5% (previous 0.6%) for the Core version.

Technical Analysis – EUR/USD

The pair is currently trading at 1.1300 and is clearly reacting to the diagonal channel seen on the chat below. What this means is that the bounce that started in close vicinity to 1.1175 support may be already over.

The bulls have tried several times to move the pair back inside the channel but failed to do so and the resulting candles show small bodies, with long wicks. These are signs that the bullish retracement is running out of steam and that the pair will possibly start a new leg of the downtrend.

The big picture shows that the pair will probably make another run for 1.1175 support but a convincing move back inside the channel will delay this scenario. An important role will be played by the U.S. inflation data that comes out later in the week, and its implications regarding the rate hike.