The US Dollar advanced across the board yesterday, rising above 101.0 for the first time in two weeks. This is due to the Federal Reserve Chair Yellen testimony yesterday.
Surprisingly, Janet Yellen kept the door open for a possible rate hike in March meeting, which pushed the Dollar higher, even though the Fed Fund Futures is pricing in 30% chance for a rate hike in March. Yet, today’s Data should give us more clues.
On the other hand, the UK inflation figures showed a slight increase, but less than the market estimates. However, it’s still the highest level in more than two years, leading the GBP to decline across the board. Yet, the figures weren’t bad. Today’s upcoming data might be the catalyst for another run ahead.
Estimates Points To An Even Jobs Report Ahead
|Average Earnings Index||2.8%||2.8%|
|Claimant Count Change||1.1K||-10.1K|
The market estimates for today’s jobs report seem to be stable, as the Average Earnings and the Unemployment rate are set to remain unchanged compared to the previous reading.
However, the Claimant Count change is expected to rise by 1.1K after declining -10.1K last month, which would be the first increase in two months.
Despite the stable forecast, a surprise is always possible. The UK economy showed a notable stabilization over the past few months, despite all the talks about the Brexit impact.
GBP Remains Strong
Despite yesterday’s decline in GBP pairs, the Pound remains strong and stable for the past two weeks, supported by 1.24 support areas, which should be watched very carefully during today’s trading.
A break through that support would clear the way for further declines ahead, probably towards 1.2360’s maybe 1.2300 later this week.
A positive surprise should be considered as another reason for GBPUSD to hold above 1.24 for at least another day, with a possibility to recover yesterday’s declines.
I believe that it’s better to wait and see on whether the pair will be able to break out of the current tight range before deciding on the next trade.
US Inflation Set To Rise in January
|Core CPI MoM||0.2%||0.2%|
|Core CPI YoY||2.1%||2.2%|
Traders need to be very careful with today’s inflation figures from the US, as most of the time traders get confused in reading the outcomes.
What matters the most for the Federal Reserve in today’s figures are the YoY CPI and Core CPI. Not saying that you can ignore the MoM data. However, keep an eye on the YoY data first before the MoM.
The YoY outcomes are likely to overshadow any positive or negative outcomes of the MoM, just like what happened in January’s Jobs Report, when the new jobs increased significantly, while the YoY wages slowed. Traders thought that the USD should rally, while it declined sharply on that day, as slowing down in wages means no inflation pressure as of yet.
Today, the Core CPI YoY is expected to slow down while the YoY CPI may rise further. The Core CPI will be the key. A slowing down in Core CPI YoY with a positive reading from the rest of the data might lead to USD selloff, as the possibility of a rate hike in March meeting will be off the table.
USD Index Outlook
The US Dollar Index stabilized again above 100 barrier and continued to rise all the way above 101.0 yesterday, posting the fifth day of consecutive gains. One we have not seen since November of last year.
However, from a technical point of view, it seems that the Dollar Index is building a head and shoulders pattern on the daily chart, which should be watched very carefully.
The left shoulder and the head if already in place and now, the right shoulder might be in progress. The invalidation level of such information would be a weekly close above 102.20’s. Otherwise, the bearish outlook is likely to resume, with a possibility to test 99.0 areas over the coming weeks.
Today’s economic releases including CPI, Core CPI (Both MoM & YoY) in addition to the retail sales data might be the catalyst for such move.