Weekly Market Outlook: All Eyes on Inflation Figures
The biggest economic news announcements this week centre around inflation figures. US CPI (Consumer Price Inflation) figures are due on Tuesday 14 September at 1.30 pm BST with UK CPI figures due on Wednesday 15 September at 7.00 am BST followed by Canada’s CPI figures at 1.30 pm BST.
Central banks have a mandate to keep inflation around a certain figure which influences their decisions regarding monetary policy. With inflation on the rise around the world due to the economic reopening and supply disruptions, traders are questioning which central bank will move first to avoid inflation getting out of control.
Traders will also be focused on the Australian employment rate on Thursday 16 September, as well as the US Retail Sales figure much later in the day at 1.30 pm BST. With such important data regarding the US dollar this week it will be a currency to keep an eye on.
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Weekly Forex Calendar
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Trader’s Radar – US Inflation
On Tuesday 14 September the Bureau of Labor Statistics releases the latest CPI report. Inflation is regarded as one of the most important pieces of data for currency flows as higher prices can lead to a central bank increasing interest rates.
Supply disruptions around the world caused by Covid-19 has led to rising prices in different sectors across several regions. The latest PMI figures also show a worsening of the supply chain with shipping costs at near-record highs.
The market was disappointed this month when the Fed didn’t announce plans to taper (trim back their coronavirus stimulus measures to revive the economy). This week’s data may cause the Fed to change tact and to announce a potential November taper which could be bullish for the US dollar.
Source: Admirals MetaTrader 5, USDX, Monthly - Data range: from 1 Jul 2013 to 10 Sep 2021, performed on 10 Sep 2021 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.
The monthly price chart of the US dollar index shown above highlights a long-term trading range in between the upper resistance and lower support horizontal lines. While the price has recently bounced from the bottom support level around ~$89.13, the push higher has been capped at the descending resistance line shown in the chart above.
The price has remained in a tight range over the past few months as traders digest both good and bad US economic data. If the data can align this week then the price may start to move in a directional manner resulting in a long-term trend.
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Corporate Trading Updates and Stock Indices
While the stock market narrative has been focused on the TINA (There Is No Alternative) trade, investors are now starting to bemoan the lofty valuations in the US stock market – especially in the technology sector.
European stock market indices have remained range based for the past few months as investors piled into the US stock market. However, last week ended in the red for US stock indices which could be the beginning of a long-overdue correction.
Source: Admiral Markets MetaTrader 5, SP500, Daily - Data range: from 11 Dec 2021 to 10 Sep 2021, performed on 10 Sep 2021 at 6:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.
Past five-year performance of the S&P 500:
- 2020 = +16.17%
- 2019 = +29.09%
- 2018 = -5.96%
- 2017 = +19.08%
- 2016 = +8.80
The moving averages shown in the chart above confirms the overall uptrend in the S&P 500 stock market index. Buyers have been frequently stepping in around the 50-period exponential moving average (red line). Currently, the price is correcting and pulling back towards this moving average.
It will be interesting to keep an eye on the price action that develops around this level and whether buyers are still interested in ‘buying the dip’ during a month that is seasonally bearish. The direction of the US dollar and this week’s news could have a big impact on this.
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