FX traders are back on full alert at the start of the trading week as hostilities in the Middle East have escalated again, causing the dollar to come back bid against most of the majors. However, attention will turn swiftly to fundamentals with key inflation data due out of the US. Both CPI and PPI data updates are due this week, but traders will be expecting the CPI numbers to have the greater impact on Fed rate expectations. The market is still expecting at least one hike this year, even after this month’s much lower than expected employment data update; however, a pullback in inflation numbers could pull back further on those expectations.
The market is expecting the headline month-on-month CPI numbers to show a 0.1% decline -down from a 0.5% increase last month – while the Core data should rise 0.3% from a previous 0.2% increase, with the key Core year-on-year number remaining at +2.9%, still well above the Fed’s desired 2% level.
Traders are expecting plenty of volatility around this event and the Euro is sitting nicely poised for some big moves if data comes in off expectations. It’s currently trading just above key support levels on the Daily chart and stronger US numbers indicating more rate hikes to come could see it break lower in fresh downside ranges for the year, while a weaker number could pull back any rate hike expectations and see it push back higher into more familiar levels.
Resistance 2: 1.1612 – Long Term Trendline Resistance
Resistance 1: 1.1488 – Trendline Resistance
Support 1: 1.1372 – Trendline Support
Support 2:1.1324 – 2026 Low
