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Today's release of Consumer price index (CPI) numbers will be most watched by traders and investors ahead of tomorrow's FOMC rate decision. CPI is scheduled to be released at 12:30 GMT.
Why important?
- FED's dual mandate is price stability and maximum employment. However, Unemployment rate has now reached 5.1% in US, which is considered as very close to long term level. That leaves inflation to be most vital for subsequent hikes.
- Moreover this is last high profile release before FOMC in tomorrow. So the reaction stands very crucial. Moreover it might even influence policy makers.
Past trends -
- CPI fell to negative territory in final quarter of 2014. In January CPI fell by -0.7% on monthly basis, mostly due to lower energy prices. CPI fell by -0.1% YoY in January.
- CPI has recovered from negative since then, with monthly CPI rising more than 0.22% (average) since then. In July CPI grew by 0.1%.
- Yearly CPI growth staying below zero till April has recovered to +0.2% in July.
- However, core CPI has been showing remarkable resilience, monthly growth not falling below since February 2010. In July prices grew by 0.1% and 1.8% from a year back.
Expectation today -
- CPI is expected to fall to 0% m/m and remain 0.2% yearly basis.
- Core CPI is expected to grow at 1.9% on yearly basis.
Impact -
- CPI data is likely to add volatility, however focus is more on FOMC rate decision tomorrow.
- However, the release is likely to set mood for Dollar, better than expected release would keep Dollar well bid heading into FOMC. Any downbeat data would push FED hold on bets further.
- Treasuries are likely to slide if CPI overshoots or even come as expected, pushing yields higher.
FXCM US Dollar index is currently trading at 11992, resistance lies at 12100 and support at 11790.
