Today’s major events in the FX markets are likely to be (1) the publication of US Consumer Price Index report and (2) the confidence vote for UK Prime Minister Theresa May, which we have already covered HERE. As far as the US CPI is concerned, this will be the last piece of major news before the Federal Reserve’s rate decision next week. So, unless it shows a surprisingly strong or surprisingly weak reading, it is unlikely to have any meaningful impact on the decision of the FOMC when it comes to monetary policy.
The CPI data will be published at 13:30 GMT or 08:30 ET. Economists surveyed by Reuters on the whole expect consumer prices in November have remained largely unchanged on the headline front after climbing 0.3% in October but rose another 0.2% on the core front last month. On a year-over-year basis, headline CPI is seen easing to 2.2% from 2.5% previously, while core CPI is expected to have ticked higher to 2.2% from 2.1% in October.
As mentioned in my FOMC outlook, the Fed could very well change this hawkish outlook in the upcoming meeting next week, although so far we have only seen some mixed commentary from Federal Reserve officials. Recent weakness in oil prices and lower demand from emerging markets may cause inflationary pressures to weaken next year, potentially encouraging the Fed to delay further rate increases. If that’s the message the Fed delivers next week, we could potentially see a sell-off in the dollar.
As far as the USD/JPY is concerned, it had reached key resistance at 113.50 ahead of the CPI report. While it is possible it could push a little further higher, don’t be surprised if it were to sell-off again as investors look forward to the Fed next week. From a technical point of view, it is clearly in compression mode right now as it consolidates in narrowing ranges. We will have a stronger view on this pair once it breaks outside of the consolidation pattern in one or the other direction.
Source: TradingView and FOREX.com.