Mon, Apr 15, 2024

USDCHF is moving in a ascending channel and the market has reached the higher high area of the channel

US headline CPI Data is expected to lower at 3.1% from 3.2% YoY in November; Core CPI is expected at 4.0% area only. US Dollar moving stronger ahead of Inflation data and FED Interest decision on Wednesday.

The upcoming week is poised to be a busy one for the U.S. dollar, featuring several high-impact events that could significantly influence its short-term trajectory. Two key events stand out: the release of the November U.S. consumer price index (CPI) report on Tuesday morning and the Federal Reserve’s monetary policy announcement on Wednesday afternoon.

Shifting Fed Sentiment

Federal Reserve's stance on interest rates

In recent weeks, there has been a notable shift in the Federal Reserve’s stance on interest rates. Market expectations now include approximately 100 basis points of easing over the next year. This shift towards a more dovish outlook has been occurring despite the presence of robust economic data, such as strong employment figures, which don’t necessarily align with the notion of an economy in dire need of central bank support.

Potential Reassessment

The projections for monetary policy could undergo a reevaluation in the coming days, depending on the outcome of the November CPI report. If the report surprises with higher-than-expected inflation figures or shows limited progress toward the Fed’s 2.0% inflation target, it could lead to a shift in market sentiment.

December FOMC Meeting

USDCHF moving in a descending channel and the market has rebounded from the lower lows area of the channel

USDCHF moving in a descending channel and the market has rebounded from the lower lows area of the channel

The upcoming December Federal Open Market Committee (FOMC) meeting also holds significance. While it is widely anticipated that the Fed will maintain the current interest rate levels during this meeting, there is a possibility that they may push back against Wall Street’s dovish expectations to prevent further easing of financial conditions.

Implications for the U.S. Dollar

Should the FOMC take a decisive stance and commit to maintaining higher interest rates for an extended period, it is likely to lead to an increase in U.S. Treasury yields. This, in turn, could bolster the strength of the U.S. dollar and set the stage for a potential recovery in 2024.

Increased Volatility Anticipated

Implications for the U.S. Dollar

Irrespective of the specific outcomes of these events, one can expect increased volatility in the foreign exchange (FX) markets in the days ahead. These pivotal events and the potential shifts in monetary policy sentiment are likely to drive market fluctuations.

Inflation Report Sets the Stage

The release of the inflation report on Tuesday will set the stage for the week’s economic developments. Investors are hopeful that another mild reading of the consumer price index (CPI) will reinforce the widely anticipated decision by the Federal Reserve to maintain current interest rates during their two-day meeting on Wednesday.

The Impact of Inflation Data

The inflation data could also have a bearing on the Federal Reserve’s timeline for interest rate adjustments in the coming year. The prospect of accelerated rate cuts, which tend to make stocks more attractive than bonds, has already led to a robust market rally over the past several weeks.

Other Economic Factors

Other economic reports from the previous week, including a notable decline in consumer inflation expectations and a cooling job market in November, are additional factors that could shape the Federal Reserve’s outlook as they convene for their meeting on Wednesday.

Global Data Release

CPI inflation report scheduled for Tuesday

One of the most significant global data releases for the week is the U.S. CPI inflation report scheduled for Tuesday. Expectations are for a slight decline in November. However, this might mark the end of favorable news, as inflation is projected to tick up again in December, potentially delaying the expected Federal Reserve rate cuts.

Truflation’s Insights

Truflation, known for its real-time data analysis, predicts a November inflation reading of 3.0%, down from 3.2% in October. However, they anticipate a return to 3.5% inflation in December, challenging the notion of early Federal Reserve rate cuts in 2024.

Factors Behind Truflation’s Analysis

USDCHF is moving in a box patttern and the market has reached the support area of the pattern

USDCHF is moving in a box patttern and the market has reached the support area of the pattern

Truflation’s U.S. CPI analysis is underpinned by an extensive dataset of real-time data points, offering a more granular view compared to traditional methods. Key factors contributing to their inflation forecasts include the tight labor market and recent employment data.

Categories Affecting Inflation

Truflation’s real-time CPI index highlights specific categories with downward price movements, such as transportation and housing, experiencing declines for the first time since January 2023. Conversely, categories like food, health, household items, and communications contribute to inflation due to elevated service prices.

The Challenge of Inflation Control

Policymakers may find it challenging to bring inflation down to the 2% target while simultaneously maintaining maximum employment. Truflation suggests that a more pronounced softening in the job market will be essential before considering interest rate cuts, according to their analysis.


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