Summary:
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US October CPI matches forecasts
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Core reading and weekly earnings miss forecasts
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USD pulls back after attempting to break higher
The most recent inflation data from the US has come in a little on the soft side and done little to help the US dollar extend its recent rally. Specifically, the October CPI Y/Y came in at 2.5%, in line with forecasts and up from the 2.3% previously. However, a closer look reveals some slightly negative points for the buck with the core reading (ex-food and energy) coming in below the 2.2% expected at 2.1%. Furthermore average weekly earnings also dipped lower, falling to +0.9% Y/Y from +1.1% prior. The pullback in the core reading sees it return close to the 2% Fed mandate, while the bank’s own preferred measure of inflation, the PCE core is still below that threshold. After a decent run up last year in both of these gauges they appear to have peaked for the time being and be drifting back lower.
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US inflation seems to be pulling back of late after a run higher with both the CPI core and PCE core dropping in recent months. Source: XTB Macrobond
In terms of market reaction to the data it has been fairly muted with the US dollar remaining a little lower on the day on balance. EM currencies are the biggest beneficiaries with the ZAR, BRL and RON the best 3 performers against the buck. At the other end of the scale is the GBP with the pound falling back lower after attempting to gain yesterday on a seeming breakthrough in Brexit. This afternoon sees UK PM May hold a meeting of her cabinet and GBP traders seem to be a little cautious as to the outcome.
The US Dollar is drifting a little lower on the day according to the heatmap with only a handful of currencies faring worse than the greenback. Source: xStation
Looking at the US dollar index the recent trade has been interesting with a clean break above the 97 handle seen on Monday. However, the was a lack of follow through during yesterday’s session and now the market finds itself back at the 97.00 breakout level. This could be significant going forward as a daily close back below 97 would negate this breakout and see it labelled as false with a move back to 95.75 then possible. Alternatively if buyers can keep the price well supported then the 97.75 region could offer some resistance as it did back in June 2017 but a clean move above there paves the way for a sustained rally towards the 2016 peak of 103.80.
The USD index looked to break higher at the start of the week but failed to get above prior resistance around 97.75. A daily close back below 97.00 would negate this breakout and see it deemed false. Source: xStation
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