Eyes on US Inflation Data & Yellen’s Testimony

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After yesterday’s mixed economic releases from the US, today is another day with an interesting collection of economic figures to be released during the upcoming US session, which is likely to have another major impact on the markets. Today, all eyes will be on the inflation figures including CPI and Core CPI, but most importantly, investors will be watching Janet Yellen’s testimony, which is the first testimony after the US election. In this article, we will discuss the possible impact of US data the most important aspects of Yellen’s testimony.

Definitions

Consumer Price Index: This index measures the change in the price of goods and services purchased by consumers. It is released monthly, about 16 days after the month ends and is also referred to as CPI.

Core Consumer Price Index: This index also measures the change in the price of goods and services purchased by consumers but excludes food and energy. Food and energy prices account for about a quarter of the CPI, but they tend to be very volatile, hence distorting the underlying trend. The FOMC usually pays more attention to the core data, so do traders.

Fed Chair Yellen’s Testimony: The testimony usually comes in 2 parts. First, she reads a prepared statement (a text version is made available on the Fed’s website at the start), then the committee will hold a question and answer session. Since the questions are not known beforehand, they sometimes bring unscripted answers that lead to heavy market volatility.

Why Is This Important?

  1. CPI & Core CPI: Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.
  2. Fed Chair Yellen’s Testimony: As head of the central bank, which controls short-term interest rates, she has more influence over the nation’s currency value than any other person. Traders scrutinize her public engagements as they are often used to drop subtle clues regarding future monetary policy.

Expectations

Indicator

Forecast

Prior

CPI

0.4%

0.3%

Core CPI

0.2%

0.1%

Building Permits

1.19M

1.23M

Philly Fed Manuf. Index

8.1

9.7

Housing Starts

1.16M

1.05M

Jobless Claims

257K

254K

Other Data & What Matters The Most

Aside from the inflation data and Janet Yellen’s testimony, another set of economic figures will be released. As shown in the table above, this includes Building Permits, Housing Starts, Weekly Jobless Claims, and the Philly Fed Manufacturing Index.

These figures are expected to have a notable impact on the markets. Yet, what matters the most is the inflation data and Janet Yellen’s testimony. A notable impact is highly possible from these figures. However, the impact might be short lived. This is especially because Janet Yellen’s testimony will occur after all the figures have already been released.

Yellen’s Tone

In today’s testimony, traders should focus on Janet Yellen’s hints regarding a possible interest rate hike in December’s meeting. So far, the Fed Fund Futures are pricing in more than a 94% chance for a 25bps rate hike in December. However, with Trump’s victory and his economic plan, the Federal Reserve might need to continue with the current policy (wait and see). If Janet Yellen hints for a hold, the US Dollar may lose ground for a short period of time. Otherwise, further gains in USDX could be seen today.

Levels To Watch

Symbol

S3

S2 S1 Pivot R1 R2

R3

EURUSD

1.0547

1.0605 1.0647 1.0705 1.0747 1.0805

1.0847

USDJPY

107.62

108.19 108.63 109.20 109.64 110.21

110.65

GBPUSD

1.2304

1.2356 1.2400 1.2452 1.2496 1.2548

1.2592

USDCHF

0.9899

0.9939 0.9979 1.0019 1.0059 1.0099

1.0139

USDCAD

1.3289

1.3345 1.3394 1.3450 1.3499 1.3555

13604

AUDUSD

0.7314

0.7385 0.7433 0.7504 0.7552 0.7623

0.7671

NZDUSD

0.6941

0.6986 0.7028 0.7073 0.7115 0.7160

0.7202

 

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