Global markets saw big moves across all financial products yesterday on the back of a fresh trade agreement between the US and China, and FX was no exception, with the dollar jumping over 1% during the course of the day. Traders are expecting to see more moves ahead as the week progresses, and today the focus will remain on the dollar as the focus moves back to fundamentals and the US CPI data release.
Investor hopes for a Fed rate cut have now been pushed further out, with expectations for a cut at the next meeting in June dropping from a 60% chance to just an 11% chance in the last month. However, if we do see a substantial deviation from expectations in today’s CPI numbers, then we could see those estimates change swiftly and some big moves in the dollar.
The headline month-on-month and Core month-on-month numbers are both expected to show a 0.3% increase, with the year-on-year number remaining steady at 2.4%, and any print plus or minus 0.2% off those would see strong moves to either side in the major currencies.
The Euro pulled back sharply in trading yesterday, dropping 1.6% from the Friday close and is now sitting just over 4% lower than its late April high, and the potential for more percentage moves later today is high. A weaker print from the data would see some good dollar selling, which should see the Euro move back towards Friday’s closing level and then resistance on the hourly chart around the 1.1300 level; conversely, a stronger print would see recent moves continue, with the next technical target level sitting on trendline support just below 1.0950.
Resistance 2: 1.1315 – Trendline Resistance
Resistance 1: 1.1247 – Friday Close
Support 1: 1.1000 – Psychological Level
Support 2: 1.0926 – Trendline Support
