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US inflation and FOMC are awaited today

The US stock market closed higher yesterday, with the Nasdaq 100 gaining over 0.7%, led by Apple. The S&P 500 also advanced by 0.27% by the end of the session. However, the Dow Jones closed the day lower by 0.3%, trimming its earlier losses.

Since the beginning of the week, volatility has eased as all eyes are now headed towards the US inflation data and the Federal Reserve decision. Both are highly awaited today, especially after the recent economic releases showed mixed results, keeping the market uncertain about the Federal Reserve path going forward.

Indicator Forecast Prior
CPI MoM 0.1% 0.3%
Core CPI MoM 0.3% 0.3%
CPI YoY 3.4% 3.4%
Core CPI YoY 3.5% 3.6%

The US inflation data is expected to show further slowdown in May. The month-over-month (MoM) increase is expected to be 0.1%, which would be the slowest increase since October of last year. The Core Consumer Price Index (CPI) MoM is expected to remain stable at 0.3% for the second month in a row.

In today’s report, the most important figure is the Core CPI YoY, which is projected to decrease to 3.5% in May from 3.6%. This would be the lowest level since April 2021. If this happens, it will confirm that inflation is still under control.

Will the Fed turn hawkish?

In recent weeks, the Federal Reserve was speculated that it might need to adopt a more hawkish stance, particularly following the latest jobs report. However, considering broader economic indicators, it seems unlikely that the Federal Reserve will change its tone. The only notable improvements in economic activity have been seen in the Private Investment quarter over quarter and in the CB Consumer Confidence.

As for the labor market, the data leans towards a weaker job market, with the unemployment rate at 4% compared to 3.8% during the previous Fed meeting. The long-term unemployment rate is over 20.5%, and the underemployment rate is 7.4%. On the positive side, job creation has increased since the previous meeting. However, these figures will likely be revised lower at some point.

Investors will watch any significant change in the Dot Plot, especially after the recent data. According to a Bloomberg survey, investors believe the Fed will lower its estimates to two or one rate cut this year.

DXY bullish momentum easing

The US Dollar Index has made slight advancements since the beginning of the week. However, the daily candles indicate a notable easing of momentum, possibly leading to a reversal, while the index remains below the 105.50 resistance level.

On the other hand, technical indicators are turning flat after turning bullish following the US Jobs Report. Today’s Fed decision is likely to give us more clues about the next move. If the Federal Reserve decides to keep its dovish stance, the downside pressure is likely to resume, especially if inflation shows another slowdown, preferably more than expected.

If the tone becomes more aggressive, the medium-term outlook will once again become bullish.

Crude oil turns bullish

After the recent decline in crude oil prices following OPEC+’s decision to extend its voluntary cuts until the end of the year, it managed to bounce back above $80 (Brent), reaching as high as $82.40 earlier this morning.

The time/price method indicates that the price and the time have now aligned, suggesting that the downward retracement may have concluded. However, we still require confirmation through a weekly close above $82. If this occurs, Brent crude could potentially rise above $84 in the upcoming weeks.

 

 

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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