Orbex Market Flash

Oil Weakness Reflected in Softer US CPI

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Despite expectations of a weaker figure due to the dramatic slump in oil prices over the last two months, US CPI remained broadly unchanged over last month.

The headline CPI reading for November, reflected the weakness in energy markets, registering a decline from the prior month’s 2.5% reading. However, core CPI was actually higher over the month, printing 2.2%, up from 2.1% prior.

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While inflation is managing to hold steady for now, the outlook isn’t great as expectations of slower growth both at home and abroad are clouding the horizon. US producer prices data for November, also released this week, rose just 0.1% on the month, down sharply from the prior month’s 0.6%, while the Fed’s main inflation gauge, the PCE index, rose just 1.8%, marking its smallest monthly increase since February.

While news of the planned production cut among OPEC and its allied nations holds the potential to buoy prices next year, there are heavy reservations about whether such cuts can be effectively implemented and whether they will be enough to curb the tide of surging US oil production which has been putting pressure on prices. Further declines in oil will weigh heavily on the inflation outlook for Q1 2019 if they materialize.

Technical Perspective

usd index

The USD Index remains penned in against the 96.91 level resistance which has capped price over the last six months or so. If we can break above here the next level to watch will be the 100-mark, a key psychological and structural level which also holds the completion of a large symmetry objective. To the downside, the 96.19 level is the first key support zone.

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