Inflation rate overview
Most of the currency pairs have been moving sideways for the last couple of weeks. These sideway developments (sideway moves considered part of the main trend in Dow Theory) could surprise investors in December. A fall in the liquidity might trigger higher volatility and steeper moves. But if the economic events remain in line with the expectations, we might then see the sideway market developments continuing to January.
A number of important indicators for the European Union were scheduled for Friday. The most anticipated one being the CPI data which was expected to be 0.3% and it didn’t disappoint. But this was to be forecasted. Draghi said several days ago that inflation is expected by the ECB to remain at or near current levels for the next few months.
As it can be seen from the chart above, CPI has been falling in the past 2 years. The fall in CPI is considered as a major price stability problem at this moment for the EU. Interest rates dropped and Euro has fallen against its major counterparts, but the inflation is yet to be recovered. It might take a while for the measures to take effect therefore the Euro could continue to decline. This means, investors could potentially expect further increase in ECB’s monetary easing in this week’s ECB meeting.
The second economic indicator for Friday was the US Unemployment Rate. It stagnated at 1 year high, 11.5%. Even if it was published in line with analysts’ expectations it would not have been considered a good thing, it has maintained this position for the past 4 months, meaning that the current measures did not help very much the labor market and the FED’s employment momentum is fading away.
WTI oil has tumbled below $65 a barrel, to the lowest level since July 2009, amid speculation prices have further to drop before OPEC’s decision to maintain output slows US shale supply. Even though the US market started to recover and the economic data is supporting this theory, the consumption is not gathering momentum. Oil prices are dropping because of the low demand. Last week’s Crude Oil Inventories showed that the stocks have risen with 1.9 million barrels.
Gold is approaching its 4 year low after the Swiss referendum came as a “no” from voters. Swiss voters did not agree for their Central Bank to raise its mandatory bullion supply at 20% of its assets. Because of this, bullion for immediate delivery fell to the lowest level since November 7. A break below $1130 per ounce could trigger a steeper fall which could target $1100 or even $1000. Investors will be closely following NFP data this Friday to define the Gold trend to come.
For today the most important economic indicators with high impact on the market developments are the Manufacturing PMI from the Great Britain and the US Manufacturing PMI. On Tuesday morning Australia will release Building Approvals and will have its monetary policy meeting. AUD pairs could have higher volatility than the others.
Overall, the week is expected to be full of volatility especially during the second half of the week.