US Inflation & Retail Data. Will Fed change its mind?

Jun 14, 4:01 pm
Federal Reserve_Orbex

In the next few hours, we are expecting US economic figures to be released. This data is set to have a notable but limited impact on the markets, ahead of the Federal Reserve decision later tonight.

During the US session ahead, we will be watching five economic figures, including CPI, Core CPI, Retail Sales, Core Retail Sales in addition to the Business Inventories and YoY data.

Expectations

Indicator

Forecast

Prior

CPI MoM

0.2%

0.2%

CPI YoY

1.9%

2.2%

Core CPI MoM

0.2%

0.1%

Core CPI YoY

1.9%

1.9%

Retail Sales MoM

0.1%

0.4%

Core Retail Sales MoM

0.2%

0.3%

Looking at the table above, we can notice that the estimates for today’s figures are mixed, which likely to confuse day traders once the numbers are released.

When looking at inflation data, the Federal Reserve and the policymakers don't care about the MoM data as much as they follow the YoY as it gives a longer-term view, instead of the choppiness of the MoM data.

Moreover, the Core CPI YoY is expected to remain stable near the 2% inflation target, while the YoY CPI is expected to dip lower to 1.9% down from 2.2%. The YoY CPI doesn’t matter for the Fed as much as the Core CPI.

As for Retail Sales, Core Retail sales are the most crucial. The estimates are pointing to softer outcome compared to the month before. If the estimates are right, this would be the weakest retail sales in three months.

Beat Or Disappoint = Same Action

The data usually leads to a notable impact on the markets, however, traders should not be confused if the market shows a muted reaction.

All eyes are on the Federal Reserve decision later tonight. This is the most anticipated meeting since the Fed promised to raise rates "relatively soon" according to its various statements and remarks.

Therefore, today’s data might have an impact on the markets. However, this impact might be short-lived and/or for a limited time, as the Federal Reserve decision is likely to overshadow any positive or negative economic outcomes throughout the current week.

What To Watch The Most

As noted before, the rate hike itself doesn’t matter anymore. To make it simple, 90% of the market participant if not more is expecting the Fed to raise the Fed Fund Rate by 25bps.

You should only be worried if the Fed surprises everyone with a hold. If so, USD will be the biggest loser of the day.

If the Fed decides to go ahead with a rate hike as expected, then the next thing you should keep an eye on is the economic projections. And, most importantly,  Fed might decide to hint about selling some of its assets later this year. If so, this would increase USD demand for some time.

Levels To Watch

The US Dollar Index managed to rise for the past few days. However, such rally was very limited and stalled yesterday, leading the index to decline back to 97.0 areas.

For the time being, the US Dollar Index showed some consolidation since Mid-May, which could be a sign for another spike higher before the down trend resumes.

According to the possible scenarios stated above, hawkish Fed would send the US Dollar Index higher, probably toward the first immediate resistance which stands at 98.50’s, which represents its 50 DAY MA followed by the former support level which stands at 98.80.

On the other hand, a dovish Fed is very likely to lead to a massive selloff in USD across the board. The US Dollar Index may test its recent lows around 96.60’s, while a breakthrough that support would clear the way for further declines, possibly toward 96.30’s which would be the lowest level for the US Dollar Index since November of last year.

 
Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.