US inflation preview: Key levels on assets before this marquee event

US CPI is the marquee risk event for the moribund market this week. The importance of this print flows through to Fed policy expectations, which will have a ripple effect across a number of different assets. The market is now pricing a 50bps hike in March with a circa 35% probability and around 5.5 hikes by year end. The estimate is for 7.3% YoY at a headline level and 5.9% YoY for core. A number above these estimates would set a new four decade high and likely lead to a further tightening of rate expectations. While a number on the other side of that estimate say 7% or below will have the opposite effect. So a beat should see the dollar bid, gold down and risk assets such as equity markets under pressure. The opposite should occur on a miss.

EURUSD:

EURUSD is struggling to retain its strong upward momentum finding resistance in the form of horizontal resistance, upper trend line of the descending channel and the RSI hitting the 62.55 area. Is price showing a potential double top too? Targets on the downside for those holding shorts could be the 50-day SMA around 1.132 and then the bottom of range support at 1.124/5 for a better risk reward ratio. A tight stop could be used around 1.148. On the upside a breach through the above mentioned resistance levels and through the stop could push price towards 1.155 support.

(Source: Tradingview - Past performance is not indicative of future performance.)

USDJPY:

Dollar yen is looking interesting with the flat-sided ascending triangle pattern forming. Selling pressure causing flat highs, while buying pressure is leading to rising lows. This structure is traditionally bullish with topside breakouts projected to target the length of the structure from the base (blue arrow) to the horizontal resistance. The projected target is around the 117.5 level. Two ways to play this – 1) more aggressive and pre-empt the breakout to increase reward or 2) wait for confirmation of the breakout with a candle close or 2 above the structure’s resistance. Stops in both cases would be below the trend line around the 21-day EMA. (pink arrow). The RSI has still got plenty room to run before overbought worries creep in.

(Source: Tradingview - Past performance is not indicative of future performance.)

Gold:

Gold is at a massive level here - $1830 with a break of it to the topside potentially triggering a flood of short covering from stops placed above there being triggered. $1845-$1850 would be the target from there. I’ve drawn in a downtrend form the highs of previous breakouts which could apply some pressure. The RSI is approaching the key 62.8 level once again. If we see a strong inflation number and gold slide lower then $1815 would be of interest and below there $1800.

(Source: Tradingview - Past performance is not indicative of future performance.)

US500:

The S&P 500 is trying to break higher above the range resistance at 4560. Whether it does is very dependent on the inflation print. Above range resistance, I’d monitor the 50-day SMA around 4611 and if we see price rejected the range resistance and move south then the 200-day SMA at 4460 would be important.

(Source: Tradingview - Past performance is not indicative of future performance.)