The economic calendar has two big events this week, the release of US CPI inflation and a scheduled speech from Federal Reserve Chairman Jerome Powell. Both events have the ability the rock the US dollar, bonds, and stock markets.
For all intents and purposes market participants are expecting the status quo trades to persist after the outlined main events of the week take place. Most economists are predicting that US CPI inflation is likely to remain muted, and below the Federal Reserve’s target rate.
Perhaps more importantly, a number of Federal Reserve members reiterated earlier this week that even if inflationary pressures return to the US economy the central bank are still committed to its massive bond buying package, known as QE.
Both CPI and Core CPI are expected to come in below trend despite the recent rise in oil and energy price. Core inflation measures the change in costs and goods of services but does not include energy or food price.
Market is therefore more likely to pay attention to the CPI headline number this week, and brush aside Core Inflation, as food and energy prices are rising and are therefore more likely to show up in the data.
Consensus opinion suggests that CPI inflation in the US economy rose by around +0.3 percent last month, which is down from +0.4 number from the month of December. If this outcome does indeed come to fruition, expect the status quo trades to continue in financial market, i.e., US dollar weakness, muted bond markets, and rising stocks.
Federal Reserve Chair Powell’s speech this week is likely to have a more pronounced effect on financial market assets. Early week dovish commentary from a number of key FED members has set the stage for more negative and cautious words from Chair Powell.
Chair Powell will be speaking via a webinar conference hosted by the NYC Economic Club on Wednesday. Again, all indications suggests that Chair Powell will talk down the United States economy, and especially so since the down beat jobs number from the United States economy last Friday.
Sentiment towards the US Dollar Index is currently very bullish, while the price is heading in the opposite direction. This is very bearish for the US dollar going into the mentioned headline events.
The ActivTrades Market Sentiment tool shows that 78 percent of traders are leaning against the ongoing bearish reversal. Expect the down move in the greenback to continue all the time retail participants continue to lean against the ongoing break down.
US Dollar Index Technical Analysis
The four-hour time frame shows that a bearish head and shoulders pattern has been activated, placing the 90.00 level as potential downside target. Additionally, a larger bearish pattern will form if the US dollar index reaches the 90.00 level.
Expect a potential bounce if the 90.00 level is reached, as the larger pattern forms a final right-hand shoulder to complete the structure of the pattern. Worryingly, the overall target of the large head and shoulders pattern is 88.50.
Source by ActivTrader.
Higher time frame analysis also paints a bleak picture of the US dollar currency, following last week’s false technical breakout above a falling price channel, and subsequent rejection back inside the bullish pattern.
Watch out for further losses in the index towards the bottom of the channel, around the 86.50 support region while the price is capped under the 91.25 level.
Source by ActivTrader.