Following last Friday's unexpected disappointing jobs number, all eyes will be on Wednesday's Consumer Price Index (CPI) report. The report comes at a crucial time for the market which remains divided over whether the Federal Reserve will increase interest rates in September.
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What is forecast to show
On Wednesday August 12 at 08:30 AM ET (12:30 PM GMT) the Bureau of Labor Statistics will release the July CPI report.
Metric (June) Expected (July) Actual
CPI (Month-on-month) -0.4% - -0.4%
CPI (Year-on-year) 3.5% - 3.5%
Core CPI (Year-on-year) 2.6% - 2.6%
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Why this report matters more now
Last Friday's jobs report showed a 23,000 drop in employment for July, against an expected increase of 83,000. Revised prior nonfarm payroll figures also showed sharp downward adjustments for May and June, giving the Fed some breathing room with regards to a hike in September.
However, the inflation data may shift that perspective.
Christopher Zaccarelli of Northlight Asset Management says all focus will turn to the CPI data released Wednesday. High inflation readings on the report could prompt more interest rate hikes in the Fed's coming meeting. Given today's jobs figures, the Fed may hold for now, but CPI could well turn that around.
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Technical position
Dollar Index (DXY): The dollar is beginning to lose momentum following the poor jobs number and cooler inflation readings would likely push it lower toward 98.60-98.00. Hot inflation on the other hand could send it sharply higher toward 101.80-102.00.
Gold: Gold is currently hovering just above the $4,200 level, after rising strongly earlier in the week. Weak inflation data may send gold higher toward $4,400 plus, while strong data readings would be pressure it toward the $4,000 support level.
EUR/USD: Trading expected between 1.150-1.155 until the release. Weaker dollar on soft CPI would likely see EUR/USD rise toward 1.16.
USD/JPY: This will likely be the most effected pair of the G10 currency basket. Markets are moving to rebuild JPY shorts after joint intervention.
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