No Signs of Rise for the Dollar as We Edge Closer to the CPI Release

This morning, the US Dollar declined slightly but remained above the significant level of 110.00. However, everything can change after this afternoon’s inflation reading. Most economists predict that the latest inflation figure will be as high as 0.6-0.7%. This is the highest since July of this year and 50% higher than the previous month. As a result, the yearly inflation rate may remain above 8%, and that is a big worry for the Federal Reserve. This is something we will look at in more detail below. 

The Midterms have also been a focal point for investors this week, as the party that wins the House controls the national budget. The outcome of the elections is not yet known but currently Republicans are in the lead and most economists do believe they will take the majority of the votes. If Republicans hold the house, it will be harder for the White House to push through policies. This could lead to a lower supply of the US Dollar, according to economists. 

The US stock market, on the other hand, did not take advantage of the weaker US Dollar, instead it declined significantly after many investors exited the market. The NASDAQ and S&P 500 declined by over 2% during yesterday’s session. Most analysts believe this is due to today’s CPI figure and also comments made yesterday by members of the FOMC. 

As mentioned above, inflation is expected to remain resilient and high, while members of the FOMC advised that inflation is still 400% higher than their target and that it is “completely premature” to speak about a pivot. So, most economists are expecting serious rate hikes in December, possibly 75 basis points if the CPI figure is above 0.6%. A higher inflation figure could potentially significantly pressure the stock market as we edge closer to the end of the earning season. 

Looking outside of the US, the cryptocurrency market is attempting to bounce back with some investors buying the dip and others refusing to sell. The price of Bitcoin increased by just under 5% during this morning’s Asian Session. However, the price is still down 22% from 5-days ago. At the beginning of the week, the CEO of Binance, Mr Zhao, confirmed that the company is pulling out of the investment agreement.

The outcome of the current liquidity issue will further influence the order flow and the price of cryptocurrencies. Though investors are also contemplating when there will be an opportunity to buy the asset at a discounted price.

Bitcoin 30-min chart on November 10th

EUR/USD

Euro investors have two main concerns regarding the relevant instrument. First, is that the US inflation readings will keep another 75 basis point hike on the table and the second is that the asset is also at a major resistance level. The resistance level is at 1.00925 and has already caused a decline over the past 48 hours measuring 0.87%. 

For a stronger bearish signal that would be relevant for the coming week, investors are hoping the price will form a bearish breakout at the 0.99707 exchange rate. On intraday charts, most indicators are signaling a decline, but traders should keep in mind the fundamental factors. 

EUR/USD 2-hour chart on November 10th

Markets forecast that the yearly inflation figure is likely to decline to 8.0% or at most 7.9%. A decline may seem positive but the monthly inflation rate has climbed again and again over the past few months, and the Core CPI, which is more important for consumers, is not expected to decline at all. Investors should note that this announcement is likely to cause high levels of volatility. Traders who wish to obtain further analysis on the CPI can also attend the CPI Release - Live Analysis Webinar. 

If we look across the Atlantic, the European Union is expected to release influential data that can affect the Euro. Tomorrow the EU is expected to release its Economic Forecast for the next two years. In addition to this, the ECB representatives such as  Luis de Guindos, Fabio Panetta and Philip Lane will also give speeches regarding monetary policy and economic growth. 

Summary: 

• US Inflation expected to remain resilient but the US Dollar is yet to see a major spike in demand. 
• Republicans look set to control the House but may underachieve compared to previous expectations. 
• Cryptocurrencies bounce back  slightly but still remain on the backfoot.
• US stocks significantly decline as investors fear a high inflation reading and another 0.75% rate hike. The fear is that more hikes will tip the economy into a recession. 
• EUR/USD under pressure from major resistance points and this afternoon’s CPI reading.