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US Inflation Set to Rise to a Four-Decade High

US Inflation Set to Rise to a Four-Decade High

S&P500     => The index ends a 5-day losing run

AUD/USD  => The pair rises 0.7200

EUR/GBP  => The pair trades at a 23-month low

S&P rises ahead of inflation data

The US S&P 500 futures are rising, building on gains from yesterday. The US index closed 0.9% higher on Monday snapping a 5-day losing run, after Federal Reserve Chair Jerome Powell’s testimony before Congress. Powell reassured that the Fed would move faster to raise interest rates if it was deemed necessary. Simultaneously, he calmed fears of the Fed moving too quickly, sounding mindful of the dangers of doing so. The balanced performance by Powell calmed the markets, boosting demand for riskier assets such as stocks. 

Today, the focus is squarely on US inflation data as measured by the consumer price index (CPI), which is forecasted to rise to 7%, a 40-year high. Should inflation rise above 7%, fears of a faster move by the Fed to hike rates could pick up again.

US CPI YoY Dec. Expected: 7% (0.2%) Previous: 6.8%

 

Where next for S&P500?

The S&P500 trades within a multi-month rising channel. It is extending the rebound off the 100 sma and the lower band of the channel and has re-taken its 50 sma in a bullish move. Buyers will be looking for a move over 4745 the November high, in order to attack 4817 and fresh all-time high. It would take a move below 4580, the year-to-date low, and 100 sma for sellers to gain traction.

AUD/USD rises even as Chinese inflation softens

The Aussie, which is also considered to be a China proxy, is managing to move higher despite softer than forecast Chinese inflation data. Both Chinese consumer price inflation and wholesale inflation missed analysts’ expectations. Instead, encouraging Australian jobs data is lifting the Australian dollar. Job vacancies in Australia jumped 18% QoQ. Concerns over rising COVID cases is China could limit gains in the AUD/USD.

Aus. Job vacancies QoQ

Chinese CPI inflation YoY

Chinese PPI inflation YoY

Actual: 18% (27.8%)

Actual: 1.5% (-0.8%)

Actual: 10.3% (2.6%)

Previous: -9.8%

Previous: 2.3%

Previous: 12.9%

EUR/GBP looks to German wholesale inflation

EUR/GBP is edging lower for a third straight session, trading around an almost 2-year low. The pound is benefitting from the increased likelihood of an interest rate hike at the BoE, compared to the ECB. Whilst the BoE is expected to start raising interest rates in February, the ECB is not expected to raise rates in 2022. 

Today Eurozone industrial production and German wholesale inflation data will be in focus. German wholesale inflation is expected to rise to 17.6%, up from 16.6% which suggests that consumer price inflation could still have further to rise. Meanwhile, there is no UK economic data due to be released. However, with a political storm brewing in London, Prime Minister Boris Johnson’s days could be numbered. Any hint of a resignation from the leader could hurt the demand for the Pound.

Support can be found at 0.83 (round number) and 0.8280 (early 2020 low).           

Resistance can be seen at 80.25 (January) and 84.00 (November high).

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