Markets Anticipating Upcoming Inflation Figures For Clarity

It has been a jam packed start to October, but only one thing is on traders minds - the US inflation figures scheduled to come out this Thursday. They are predicted to create a considerable amount of volatility. For now, crude oil prices and US employment figures from Friday, which came as a shock to the market, remain the main news.

Most economists predicted that the employment figures would decline, but the US employment sector continues to show more resilience than expected. The Unemployment Rate unexpectedly declined from 3.7% to 3.5%. This is positive for both the US economy and the US Dollar. However, the Non-Farm Payroll came in 15,000 higher than expected, which is lower than the previous months, so the prediction was quite accurate.

The US Dollar saw a sharp decline towards the end of September and early October, however, the currency was strongly supported on Friday. Normally, a strong employment sector can also support the stock market and investor confidence, however, under the current market conditions the figures support further interest rate hikes. Interest rate hikes are considered negative for the stock market, as seen this morning when the three main US indices opened at a lower price.

Crude Oil

One of the most volatile instruments of the past week was without doubt crude oil. The price per barrel increased by over 14% within a single week due to the latest cut in productions which OPEC had announced last Wednesday. Hovering around August’s price highs, the price has slightly declined this morning but, so far, has formed nothing more than a retracement. Traders will be monitoring the breakout levels at $90.62 and $92.34.

Crude Oil 2-hour chart on September 10th

Economists have not yet aligned as to whether they believe the price of oil will continue to increase to $100, remain at $90, or decline to $80 and below again. The bullish price movement was driven by the 2 million cut in OPEC’s production target. However, as mentioned last week, OPEC were unable to reach their set targets to begin with, therefore the “real” production cut is likely to be in the region of 880,000 to 950,000.

The question is whether the price of oil is trading at its true value. Analysts expect some reaction from the Biden administration which is determined to bring the price of oil down to at least $80 per barrel. So far, they have only announced the withdrawal of an additional 10 million barrels from the strategic reserve but this is not likely to have a major impact.

Higher oil prices are also likely to trigger higher inflation which is a big issue for all Central Banks. The price of crude oil may be pressured if Central Banks move into a majorly restrictive stance and if economic conditions deteriorate. Traders should keep in mind that the monetary policy is what triggered the 3 ½ month decline. However, this will strongly depend on this Thursday’s CPI figures.

EUR/USD

The EUR/USD pair is currently declining for its fourth consecutive day and has formed its third impulse wave. Currently, the momentum remains in favor of the US Dollar which is attempting to make a full price correction. The price is currently trading within the “short” zone of the regression channel and below moving averages. Both are indicating a decline and so is the Parabolic SAR. However, traders should be cautious of the price movement, specifically as today is a US bank holiday.

The price of the US Dollar Index starts the week off significantly higher than previous Monday and slightly higher than today’s market open. Traders will be monitoring the Purchase Price Index which is scheduled for Wednesday and is predicted to increase to 0.2%. However, the main price driver will be the CPI figure which is predicted to come in at 0.2%.

EUR/USD 4-hour chart on September 10th

Quick Summary:

• US Unemployment Rate unexpectedly declined from 3.7% to 3.5% and the NFP figures came in 15,000 higher than expected.
• The US Dollar attempts a full price correction after positive employment figures.
• Crude oil prices are supported by OPEC’s price cut but economists are unsure about oil’s true value.
• Increasing oil prices have a huge impact on inflation rates, but oil could suffer if Central Banks tighten the monetary policy even further.
• Three main US indices start the week in the red.