US Inflation Preview

Luke Suddards
Luke Suddards
Research Strategist
Dec 10, 2021
What you need to know before today's big inflation drop.

Today’s inflation print is the last major data point before the Fed’s meeting next week. We’re in the blackout period now, so no further clues or hints can be grasped from FOMC member chatter. 6.8% YoY is the market’s expectation for headline inflation, 7 of the past 9 US inflation prints have beaten the consensus forecast, so the odds are stacked for a print hotter than 6.8%. Psychologically a print above 7% should inject some volatility into asset classes sensitive to inflation. The decline in energy prices won’t feed through into this inflation print and labour markets remain tight as we saw the record job vacancies indicating employer’s appetite remains robust. Jobless claims yesterday were also well under consensus and the lowest since 1969. If omicron doesn’t deteriorate, then expectations for a faster taper should build into next week’s meeting. Meaning we could see interest rate lift-off sooner than expected and a repricing by short term interest rate markets. Let’s take a look at the key assets that could be affected by inflation data.

Dollar Index (DXY):

The dollar is ever so slightly above its upper trend line and the 21-day EMA has provided good dynamic support. The RSI has bounced off the 55 support level too keeping the uptrend momentum intact. There is some resistance at 96.5 to monitor and on the downside the 21-day EMA would be important to watch if price slides.

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EURUSD:

EURUSD moves sideways with a slight tilt towards the downside capped by the overhead 21-day EMA. 1.135 resistance has formed as the one to watch. The price support at 1.125 should be on your radar too. The RSI has rolled over a touch and pointing lower. The former low around the lower trend line at 1.12 could be very important over the next week.

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GBPUSD:

GBPUSD looks technically weak as it trades below the lower trend line of its descending channel. The RSI hovers just above oversold. 1.315 on the downside would be key for a move lower while 1.32.5 - 1.33 on the upside just below the 21-day EMA would be key.

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USDJPY:

USDJPY continues to be bid around its 38.2% Fibonacci level and mini range support around 113.5. The 50-day SMA and 21-day EMA are bunched up right together on the price candles. The RSI edges above the 46 level of support. Targets wise, on the upside 114-114.5 will remain key while on the downside 112.5 will be important to watch.

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Gold:

Gold remains trapped in a tight range with today's inflation data a potential catalyst for a more directional move. Price is now below the $1775 support level with room to move towards $1750 as the RSI doesn't raise concerns of oversold readings. The important level on the upside will be $1800 just above all the key moving averages.

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