On the day preceding the US inflation report publication, American indices were climbing. Yesterday, Nasdaq Composite performed the best, gaining 0.75%, the S&P 500 grew by almost 0.6% and industrial Dow Jones recorded a positive result at the level of 0.45%. The EUR/USD exchange rate rose to around 1.0970 following Isabel Schnabel’s remarks from the European Central Bank (ECB). The yields of German government bonds also increased.
Yesterday’s increases in the main currency pair may have resulted from a stronger euro, as Isabel Schnabel of the ECB commented on monetary policy. Her words were received somewhat “hawkishly”. She stated it was too early to discuss interest rate cuts and declared that the ECB will maintain their high level until it is sure inflation has returned to the 2% target. She emphasized the importance of future macro data which will depict the development of this matter. She also highlighted that “financial conditions have eased more than anticipated”, explaining this relaxation is associated with expected interest rate cuts.
It should be reminded that the ECB maintained interest rates unchanged at the last two meetings, assessing the impact of its monetary tightening campaign on the economy.
Market valuation has slightly changed. The probability of a reduction in the cost of money in the eurozone at the March meeting fell to a level close to 30%. On Friday, it was still 50%.
Today we will learn about inflation data in the United States for December. Economists surveyed by Bloomberg expect the baseline index to increase more strongly month-to-month compared to November(to 0.2%), and the base rate change in the same context will at least show a dynamics of 0.3%. The year-on-year basic measurement is expected to decrease from 4% to 3.8% while the main is expected to increase to 3.2% from 3.1% previously. Inflation is visibly falling more noticeably worldwide. Today’s data shouldn’t change much. As long as the core CPI stabilizes between 0.2 and 0.3% m/m, institutions will not announce victory over this economic phenomenon.
Yesterday the EUR/USD rate equaled local highs and this morning it approached the peak set last Friday after publishing the NFP report. The candlestick arrangement on the chart suggests that perhaps another growth impulse on the main currency pair is beginning. The low from last Friday was located within two internal Fibo retracements (38.2 and 61.8%) and also in the close proximity of the growth channel’s lower band. A similarity in terms of size of the two latest bearish corrections is noticeable. Theoretically, lower than forecast US CPI data should further weaken the US dollar and thereby cause the EUR/USD to break through the 1.10 level.
Łukasz Zembik Oanda TMS Brokers.
