CPI Expectations Slowdown Market Trends

U.S. Dollar Index (USDX)

The dollar index and dollar Fed members stated were down nearly 0.8% this week in anticipation of the inflation data. The greenback has been on a sharp decline since late 2022, amid an increasing number of bets that U.S. inflation has peaked, and that the Fed will raise rates at a slower pace in the coming months.

Markets were mildly positive but were sitting on gains for the week in anticipation of data that is expected to show that U.S. consumer inflation retreated further in December.

The dollar index trades under heavy selling pressure and remains committed to the downtrend that started in early November. Meanwhile, the hourly chart shows robust selling pressure despite the overselling readings from RSI and MACD.

Pivot Point: 102.85

Japanese Yen (USDJPY)

The yen got a boost on expectations that the Bank of Japan will review the side effects of its monetary easing, while the dollar paused its retreat and wobbled near a seven-month low against the euro ahead of U.S. inflation data later in the day.

The news follows the BOJ’s surprise tweak in December to its bond yield control, though the move has failed to address distortions caused in the bond market by the central bank’s massive bond buying.

The Japanese yen jumped nearly 0.7% to 131.58 per dollar in early Asia trade, following a Yomiuri report that the BOJ will review the side effects of its monetary easing at next week’s policy meetings and may take additional steps to correct distortions in the yield curve.

Pivot Point: 131.70

Spot Gold (XAUUSD)

Gold prices hovered around an eight-month high on Thursday as markets positioned for data that is expected to show a further easing in U.S. inflation, while copper prices stuck to a near seven-month high amid increased optimism over China. Market participants expect the U.S. CPI data to show that inflation eased further in December from the prior month, necessitating less hawkish moves from the Federal Reserve after a rapid rise in interest rates through 2022.

Spot gold was steady around $1,876.41 an ounce, while gold futures were muted at $1,879.50 an ounce. Both instruments were trading at an eight-month high, after logging a strong start to the year.

Spot gold remains solid and hits the strong resistance at 1,880 while keeping the buying pressure at the highest levels in a few months. If gold prices broke above 1,880 it is likely to see 1,900 and 1,910. However, if gold failed to break the resistance it will most likely drop between 1,860 and 1,850.

Pivot Point: 1,880

WTI Futures (CL-OIL)

Oil traded neutrally this morning but stuck to a near two-week high amid increased expectations that U.S. consumer inflation data will ease further and herald smaller interest rate hikes in the coming months. U.S. consumer price index data, which is due later in the day, is expected to show that inflation eased further in December from the prior month, necessitating less hawkish moves by the Federal Reserve. This scenario is likely to weigh on the dollar and point to improved economic conditions in 2023, which is beneficial to crude demand.

Brent oil futures fell 0.1% to $82.82 a barrel, while West Texas Intermediate crude futures rose 0.2% to $77.55 a barrel. Both contracts rallied over 5% so far this week. Fears of a looming economic recession in 2023 also saw oil prices mark a weak start to 2023. But prices recovered sharply in recent sessions on the prospect of a less hawkish Fed, as well as a U.S. government forecast that global petroleum demand will hit a record high this year.

Pivot Point: 77.30