The headline Consumer Price Index (CPI) had surged to 6.2% year-over-year (y/y) in October, while Core CPI Inflation (i.e. exluding food and energy) rose 4.6% y/y. Those figures marked the largest 12-month increases since the period ending November 1990 and August 1991 respectively.
November's Consumer Price Index is released later in the day and is forecasted to jump 6.8% y/y and the Core CPI is forecasted at 4.9% y/y.
The US central bank had long maintained that high prices were of transitory nature, but we had seen a gradual shift away from that view, before Chairman Powell putting the term "transitory" to rest during his Senate testimony last week.
We need to note though, that the Fed's preferred gauge of Inflation is not the Consumer Price Index, but the Personal Consumption Expenditures (PCE). In any case, this metric has also been very high, reaching 5.0% y/y for the headline reading in October and 4.1% y/y for the core one, with the next update due on December 23.
In the face of high Inflation, the Fed announced the tapering of its Quantitative Easing (QE) program in early November and many officials have already been calling for faster pace and an earlier conclusion, including Mr Powell who pointed at such a path in his aforementioned testimony.
This is helpful for the US Dollar and US Treasury yields to which the pair is very sensitive, having registered a roughly 100 pip rally on November 10, the day that the last CPI figures were released.
As such, caution is needed, as today's print is likely to determine the next leg and has the potential to spark outsized moves.
Today, USD/JPY is calm as markets are in a "wait and see" mode ahead of the release and the technical outlook has not changed much for the previous analysis.
The week started on the offensive as risk-on mood prevailed and the pair sits above the daily Ichimoku Cloud, but struggles to leave the EMA200 behind it. Bulls have the ability to reclaim 114.00, but will need CPI help to take 114.70 out. A disappointment on the other hand, can lead the pair back below 113.00 and create risk for sub-112.52 moves.
Past Performance: Past Performance is not an indicator of future results.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.