All eyes on US inflation data today

During the US session today, all eyes will be on the US inflation which might have the biggest impact on the markets this week, as it will give investors and traders more clues as to whether the Federal Reserve’s tightening cycle is confirmed to be over or not, especially after the recent economic releases including the US Jobs Report.

Expectations (Reuters)

However, any reading below that mark would be considered another confirmation that the Federal Reserve’s tightening cycle is over. In addition, it would fuel the expectations of a sooner rate cut next year.

Currently, the Fed Fund Futures are not pricing in any rate hike going forward. December’s probability is currently at 14% while January’s meeting probability is at 28%.

As for the rate cut probability, June’s meeting is currently at 74%, while July’s meeting probability is at 130%.

Scenarios

Today’s economic releases can be considered either black or white, and the impact might be fast and in one direction depending on the outcomes.

The best scenario would be if all the indicators show a clear slowdown, including the MoM and the YoY. This includes both the CPI and the Core CPI. If so, this would be a clear signal that the Federal Reserve’s tightening cycle is over. In return, the US Dollar is likely to take another dip while indices are likely to get another boost.

Another scenario that would be less effective is if the data comes in line with the market expectations; the market focus will shift towards the next set of economic releases.

The worst-case scenario for today’s data would be if the entire dataset comes with a surprise higher. Such an outcome would lead to a significant shift in expectations. In return, the Dollar is likely to get another boost, while equities are likely to get another dip.

DXY bearish outlook unchanged

The US Dollar Index continues to struggle under the 106.0 resistance area since last week’s trading, while the RSI indicator remains below the 50 key level and flat at the same time, which keeps the bearish outlook unchanged.

A slower-than-expected core inflation will act as another catalyst for another leg lower. However, this time, it is likely to extend longer than the previous decline which occurred after the US Jobs Report, as market expectations for a sooner rate cut will increase dramatically.

GBP spiked on jobs report

UK’s Jobs Report came in with mixed outcomes earlier this morning, The Unemployment Rate remained at 4.2% while the Employment Change declined by -207K. However, GBP popped on the back of the Average Earnings, which slowed down. The Average Weekly Earnings slowed down to 7.9% in September while estimates were to slow down to 7.3%. Moreover, the previous reading was revised higher to 8.2% from 8.1%. Such outcomes suggest that wage inflation is sticky, which might lead the Bank of England to do more.

GBPUSD advanced for the third consecutive day, nearing the 1.23 resistance area, while the RSI indicator remains above the 50 key level, which keeps the bullish outlook unchanged. However, a break above that resistance area between 1.23 and 1.2320 is needed to strengthen the bullish outlook. If so, the next key resistance stands at 1.2430.

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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