US 1-year inflation expectations remained at 3% according to the NY Fed. The 3-year dropped to 2.4%.
Whilst CPI expectations are trending lower, they remain elevated and above the Fed's 2% target up to 3 years out... Even the 1-year CPI expectations from University of Michigan is at 2.9%.
Now, I'm not sure the Fed use absolute numbers of consumer's forecasting abilities to shape their policy, but it does at least provide a gauge on sentiment; consumers expect prices to remain higher for longer.
Fed fund futures are now not pricing in a single rate cut this year with a probability of 50% or higher.
- Wall Street extended its rise and tagged fresh record highs, although the S&P 500 and Nasdaq 100 handed back earlier gains to print small bearish candles at their highs (shooting stars)
- Volatility for forex majors was on the low side on Monday on the eve of a key US inflation report, with trading volumes also dropping due to Chinese New year (China’s markets are to remain closed for the remainder of the week)
- EUR/USD tagged 1.08 before swiftly reversing to form a bearish outside day (and long-legged doji) to snap a 4-day winning streak around resistance, hinting at a potential swing high
- Australian retailer JB Hi-Fi trimmed its shareholder payout after reporting a drop in profits due to challenging retail conditions
Events in focus (AEDT):
- 10:30 – Australian consumer sentiment (Westpac)
- 10:50 – Japan’s producer prices
- 11:30 – Australian business confidence, conditions (NAB)
- 17:00 – Japan’s machine tool orders
- 18:00 – UK average earnings, claimant count, unemployment
ASX 200 at a glance:
- The ASX 200 cash index closed at a 3-day low on Monday, yet remained supported above 7600
- Short volume on the ASX rose to its highest level this year according to data from Finra, although we’re yet to see such flows make a noteworthy bearish dent to prices
- With Wall Street higher and a pending US inflation report, price action could remain choppy and confined to ranges
- The SPI 200 futures chart shows that prices have repeatedly failed to hold above 7600 since Friday, which makes it an area to consider fading into should prices rally at the open
- An intraday support zone of interest is between 7569 (200-hour EMA) and 7565 (overnight volume point of control)
- Should US CPI come in hot it could dent sentiment for equity traders, which brings the 7540 are into focus around the 20-day EMA and overnight VPOC from Feb 6th
EUR/USD technical analysis (daily chart):
The daily chart shows that EUR/USD broke its 4-day winning streak. Regular readers will know that I have assumed the move higher to be corrective, which then also assumes a retest and break beneath the December low. A hot US inflation report could be the ticket. And that leaves the obvious upside risk of a hot inflation report, which could send EUR/USD comfortably above 1.08 on renewed bets of multiple Fed cuts this year.
Technically, I like how a bearish outside side / spinning top / long-legged doji formed around 1.08, near the 200-day EMA. Hance the bearish bias.
USD/JPY technical analysis (30-minute chart):
Given the lighter volumes during the Asian session this week (China’s lunar new year) then we could be in for some choppy trade on pairs such as USD/JPY. However, the 30-minute chart shows a strong rally from the 148.31 low, and prices are now within a consolidation period. It may be best to try and look past the initial moves at the Tokyo open as I suspect it will be a false move. Ideally, I would like to see prices eventually pull back towards the 100-bar EMA and look for evidence of a swing low, to rejoin its bullish trend in anticipation of a move to (and potentially above) 149.60 en route to 150.
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