Markets Stand Still Ahead of US CPI Release

Judgment day has finally arrived for both the US Dollar and US Stocks. Investors fix their eyes on today’s inflation announcement which is scheduled for 15:30 GMT+3. Most assets, including the US Dollar and stocks, traded flat during this morning’s Asian session. Investors are most likely waiting for clarity from the CPI figures before placing strong positions within the market.

Although the majority of investors have been focusing mainly on inflation this week, there have been some important announcements over the past 24 hours. This includes the Federal Reserve’s Meeting Minutes and the Purchase Price Index. Both announcements are considered significant.

The market is also seeing further developments within the UK economy and the oil market, both of which are experiencing volatility. The price of crude oil has declined by almost 7% this week, following OPEC’s announcement that they expect demand to decline over the next quarter. Yesterday’s PPI figure didn’t help oil prices, as it supported interest rates moving into the restrictive zone. Oil prices had recently reached
a high of $92.60, however, many economists believed that the price was ‘overbought’ considering the current recession risks. OPEC had previously advised that they aim for a price of $85 per barrel and economists agree that its intrinsic value is between $80 and $85.

The British Pound, on the other hand, grew against the US Dollar significantly more than other currencies. However, traders should note that this was mainly a result of the Bank of England’s emergency bond buying program which is due to end tomorrow. Economic statistics for the UK have been poor over the past 24 hours and continue to indicate a recession by the end of the year.

EUR/USD

The price of the EUR/USD has been lacking a clear direction over the past 48 hours. This is understandable considering the importance of today’s events. The price has mainly been trading within the range of 0.9679 and 0.9734, with only minor failed attempted breakouts. It is clear that the market is waiting for clarity and that traders can use these breakout levels along with the CPI figure to obtain indications as to how the price may move over the next couple of weeks.

EUR/USD 1-hour chart on October 13th

Yesterday, the US released their latest Purchase Price Index which showed a considerable rise in the price of goods and services sold by producers. Of course, this does not guarantee that prices for consumers will also increase but it does support the theory. The PPI was predicted to come in at 0.2% but instead it came in at 0.4% which is the highest since July.

In addition to the above, the market also listened closely to the Fed’s Meeting Minutes which were released at the end of the US trading Session. The report confirmed that the US regulator will continue on the path towards the restrictive policy zone even if inflation slightly declines. However, there were some comments from certain members indicating that the Fed will soon look at halting hikes, possibly in the new year. If the interest rate rises by a further 0.75%, it will officially be in restrictive territory. So far, this is the prediction.

Today’s CPI figure is predicted to increase to 0.3% which is slightly higher than the previous month. If the inflation figure comes in higher than the predicted 0.3% it can potentially apply significant pressure on the US stock market. However, a lower figure can have the opposite effect. If inflation is confirmed at 0.0% or lower we may possibly see a weakening USD and strengthening stock market. However, it is important for traders to analyze the price movement as well as the figures released.

Quick Summary:

• Markets trade flat as they look for clarity from US inflation figures.
• CPI is predicted to increase to 0.3% which is slightly higher than the previous month.
• If the inflation figure is even higher than the predicted 0.3%, it could pressure the US stock market.
• Oil prices decline as OPEC announces that they expect a decline in demand in the next quarter.