Waiting for CPI data from the United States

Trade the day before the US inflation release, much anticipated by investors, was mixed. The industrial Dow Jones gained 0,3%. while Nasdaq Composite and SP500 lost 0,3% respectively. and 0,1 percent The market consensus assumes further disinflation in January in the United States.

On Thursday we will also know what retail sales will be indicator of the condition of private consumption in the USA. The US dollar remained stable, as did US bond yields.

Fed wants more progress on inflation

Yesterday, Thomas Barkin warned against declaring victory over inflation too early. The Fed representative said that there is real pressure in CPI indicators. Michelle Bowman spoke about monetary policy, admitting that the Fed rate is in a good place right now and sees no need to lower the cost of money any time soon. This statement should also be treated as hawkish. However, the markets passed them by unmoved because statements of this type are generally known and commonly repeated by most decision-makers for a long time. Federal Reserve.

We all know that the Fed wants to see more progress on inflation before making a final decision to ease monetary conditions. There is also a greater chance that Powell and his colleagues will prefer it keep rates high longer, because they see a greater risk in starting the reduction cycle too early than in starting the reduction cycle too late. Especially when the US economy is so resilient and, apart from isolated symptoms of slowdown, the overall picture is still optimistic.

Everything will be clear... in a few months

Bloomberg forecasts indicate a further decline in inflation. CPI on an annual basis, it is expected to drop from 3,4%. up to 2,9 percent in January. The core index is expected to decline by 3,9%. up to 3,7 percent The month-to-month dynamics is expected to be 0,2 percent, respectively. and 0,3 percent and be similar to the one a month earlier. Data consistent with expectations may not arouse emotions. In turn, surprise in both directions should generate a bit more traffic. Today's numbers could point to further direction for US dollar strength.

The data will likely highlight what the Fed has been keen to point out over the past two weeks. Namely, that a few more months of good readings may be needed before everything becomes clear. The publication, in line with expectations, should indicate to the market that a reduction in interest rates in March is unlikely.

The EUR/USD rate dropped yesterday from the level of 1,08 and set daily lows around 1,0755. The quotations are still moving in a medium-term descending channel. The increases visible for a week should be noted at this point still be treated as a correction of this dominant tendency, which has been in force for over two months. A signal of a greater move north will only be the breaking of the horizontal resistance at 1,08 and the overcoming of the falling trend line that connects the peaks from the end of December 2023 and the beginning of February.

Source: Łukasz Zembik, OANDA TMS Brokers