Will US inflation be the next ‘hot beat’ on the dance floor?

The hottest beats on the dancefloor these days are inflation reports, with the vast majority of them beating expectations. So it makes me a little nervous that US inflation is expected to soften slightly – as markets have positioned themselves for it to do so. But that also presents opportunities for traders should it all turn to custard.

We can take today’s inflation print as a proxy for Fed policy. Another hot report decreases the odds of a slower pace of Fed tightening, likely boosting the dollar whilst weighing on Wall Street, commodities and all other currencies. Whilst a softer inflation report keeps hopes alive that the big hikes are behind us and send the dollar lower.

And as we’re approaching a key US inflation report with a weaker dollar, on expectations of softer inflation and a Republican ‘red wave’ that isn’t – I suspect the path of least resistance is higher for USD. And that could easily send DXY back to 112. And with that comes weaker commodity currencies, euro, GBP and a higher USD/JPY.

US dollar index daily chart (DXY):

The US dollar index has held above a key support zone around 109.96, which comprises of the October 2002 high, October 2022 low and bullish trendline. A -bar bullish reversal has also formed to suggest a swing low is in place, and with it comes the potential to head back to the monthly pivot point just beneath 112. At this stage I am equally open for it to top out, roll over and break trend support as I am for it breaking back above 112. But for now, the near-term bias remains bullish whilst prices hold above this week’s low.

AUD/USD daily chart:

The Aussie has more than handed back this week’s earlier gains, having found resistance around 65c. And that could mark the weekly high with a hotter-than-like US inflation report and send it back towards 63c. And likely quicker, should the Dems retain the Senate.

The euro has effectively move in lockstep with the Aussie, having pulled back from resistance just below 1.1000, with parity now coming to the rescue. I expect prices will chop around that milestone level without a new catalyst, with a hot CPI print likely to crash the euro through parity, or it becomes a springboard for prices if inflation actually manages to soften.

USD/JPY daily chart:

USD/JPY is holding nicely above the 145.1 and looks ripe for a bounce, given its -4.5% retracement from its intervention high. That said, prices are currently pulling back from the 146.50 area – which markets last week’s area of heaviest trading volume - but that could allow some savvy bulls to enter at a more favourable price, in anticipation for its next leg higher. It may not take much of an inflation ‘beat’ to lift USD/JPY back to 148.

How to trade with City Index

You can easily trade with City Index by using these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.