💲 Strong USD ahead of CPI reading

US CPI data is scheduled to be released today at 1.30pm BST. Investors sell risk assets amid market uncertainty

Major markets in Europe and futures contracts in the US are looking nervous ahead of the US CPI data for April published today. Investors are choosing to divest from high-risk positions. Data will likely confirm the FED monetary policy. Currently, traders are pricing in a 25% chance of a rate hike by the Federal Reserve on June 14 and this expectation is unlikely to change significantly unless actual release deviates strongly from the expected figures. Consumer Price Index data is scheduled to be released at 01:30 pm BST time. Here are the details:

• CPI inflation (YoY): Forecast: 5.0% YoY. Previously: 5.0% YoY.

• Core CPI inflation (YoY): Forecast: 5.5% YoY. Previously: 5.6% YoY.

• CPI inflation (MoM): Forecast: 0.4% MoM. Previously: 0.1% MoM.

• Core CPI inflation (MoM): Forecast: 0.4% MoM. Previously: 0.4% MoM.

If the expected inflation data turn out to be consistent with the actual publication it would be roughly consistent with a PCE reading based on historical correlations. That will give the FED a ton of comfort, considering it has penciled in an estimate of 3.3% for the latter this year. Fed Williams said he expects inflation to drop to 3.25% this year and reach a 2% inflation target by 2025. However, he also said he does not see any reasons to cut rates this year.

The chart below shows the contributions to the CPI Headline inflation. In the last cycle of inflation growth, we can see the discrepancies which components had a significant impact on the total inflation. It is worth noting that the inflation growth was initiated by the Transport and Apparel sector. These prices have already calmed down. Afterward, prices related to Housing and Food contributed mostly to the overall reading. On the positive note these components also showed signs of cooling down. Private data has already shown that the growth in rent prices is starting to slow.

Financial markets

Ahead of CPI release, the US dollar is appreciating against most of the major currencies. The US Dollar Index has entered a consolidation phase following two consecutive days of better performance.The release of CPI data is expected to increase volatility later in the day. The EURUSD pair experienced a downward correction, closing below 1.1000. Despite hawkish comments from European Central Bank (ECB) governors supporting the Euro, the currency pair is still trading below 1.1000 level with a 0.12% decline.

EURUSD chart, H1 interval. Source Xstation 5

The US500 index is currently trading at 4,128 points, reflecting a 0.2% decline. The recent price action shows a rejection from the resistance zone around 4,150 points, followed by a subsequent decline to the current levels. As the CPI data publication is coming, the price is trending downward. The next support level to monitor is at 4,100 points, while the upper resistance levels are at 4,150 and 4,200 points respectively. Traders should closely observe the price action around these levels for potential shifts in market sentiment. Ahead of the publication a higher volatility should be expected.

​​​​​​US500 chart, H1 interval. Source Xstation 5