US Data Due

Traders are braced for plenty of volatility this week with a slew of key economic data due. The schedule kicks off tomorrow with the keenly awaited US CPI reading for January. On the back of the recent uptick in inflation traders will be keen to see whether the lift in December extended through January or if the downtrend resumed.

Fed Expectations

Fed easing expectations have taken centre stage again recently with policymakers seen pushing back against those calling for near-term easing. The Fed has reiterated recently that while rate cuts are expected this year, it is in no rush to start cutting. Indeed, with US data holding up so well recently, traders have scaled back their near-term easing expectations, keeping USD supported.

Expectations for Tomorrow

Looking ahead to tomorrow’s US CPI readings, the market is expecting annualised headline CPI to have softened to 2.9% from 3.4% prior. In terms of trading the data, the implications are very clear. If inflation is seen to have remained sticky at higher levels last month, this should further dilute near-term rate cut expectations sending USD higher. However, if inflation undershoots forecasts and is seen to have fallen back last month, this should keep the possibility of H1 cuts on the table, causing some weakening of USD.

Technical Views

DXY

The rally in the index has stalled for now ahead of the 104.95 level. Momentum studies are weakening a little, suggesting risks of a correction lower. However, while price holds above the 103.48 level, the focus is on a continuation higher and an eventual breakout above 104.95 next.