rahul.khanna's picture

What to make of US CPI figures?

USD has fallen too far over the past two weeks then justified by fundamentals, but from a technical perspective- USD is now testing old highs hit in January vs. a range of currencies. We may see the current correction coming to an end with CPI figures key to resuming the medium-term rally.

We mentioned in our old blogs on “currency wars” that USD appreciation will depend on the unease of the Fed in letting it rise at the expense of its exports.  And it seems that dovish remarks in the last FOMC meeting suggested Fed engaging in currency war. However, hawkish comments from Fed President Bullard suggest that the Fed is now back paddling. Having said this, all will depend on the CPI figures out on Tuesday at 1230, where any surprise to the upside will see USD rally resume.

EUR seems to be doing well vs. the majors barring CHF, which has seen a rise over the past week. Eurozone PMI figures Tuesday morning has also provided a further boost to the Euro. However, going forward we see limited upside scope for EUR with QE continuing as ECB racks up bond purchases.

GBP is likely to remain weak heading into UK election as it starts to look bearish vs. a range of currencies given the speed of the recent fall (except vs. USD). Inflation figures were also weak on Tuesday morning, but market is likely to await retail sales data, out on Thursday, before taking any significant directional view. (Caveat: GBPUSD may fall post US CPI figures).