Open Account Trading Carries Risk
Analysis

Investors bet that inflation has peaked

  • DJ rallies as markets expect for a lower CPI reading
  • DAX remains strong with investors betting there’s no recession ahead
  • Today’s CPI release is likely to create big trading opportunities

Economists expect the CPI to have risen 6.5% y/y (down from 7.1% a month earlier). Investors believe the peak inflation is behind us now and that the Fed pivot is not that far in the future. At the moment the Fed Funds Futures market is pricing in a 78.2% probability for the next rate hike to be 25 bp. The markets have been very positive lately on the back of the belief that inflation has peaked. This means we have potential trading opportunities on both directions.

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Markets are clearly expecting the Fed to take a step back as inflation cools down. The monetary policy impact comes with a delay which means the Fed has to refrain from further hikes at some point so that the impact of the past hikes on the economy can be evaluated.

DJH8 0112

DJ rallied as investors bet for lower inflation

DJ remains in an uptrend as investors discount lower inflation numbers. The market rallied yesterday (as expected) and has stalled at the channel high. The nearest key support level in the 4h chart is at 33 684. Below this level, the market could move down to 33 480. The next key resistance level is at 34 396. A significantly higher-than-expected CPI print would probably send the market lower while a number that’s in line or below predictions is likely to keep the bids firm.

DE30 H2 0112

DAX remains strong

DAX has maintained its momentum. The strength seen in the index suggests traders believe the ECB isn’t going to move forward with their hawkish plans and that there’s not going to be a recession after all. The nearest key support is at 14 795. Below the level, the market could move down to the 14 500 – 14 600 range. The market is currently pushing into the market top created a year ago. There are several resistance levels inside this market top so it’s going to be interesting to see how long the index can maintain the upside momentum.

EURUSDH8 01 12

USD weakness ahead of the CPI

EURUSD has pushed above several resistance levels lately and is now trading above the 1.0735 level. If the market retraces and breaks the minor support level at 1.0712 we might see a move down to 1.0635 and then to 1.0560 on extension. The next key resistance level above the current market price is at 1.0805.

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GBPUSDH8 0112

GBPUSD resumed the daily uptrend

GBPUSD has resumed the uptrend (in the daily chart) after drifting lower in a price channel. Now the market has created a minor consolidation formation that is probably resolved to the upside (unless the US CPI comes in higher than expected). If the lower end of the formation at 1.2100 is violated then we might see a move down to 1.1960. Note that the UK GDP numbers come out tomorrow morning London time.

The Next Main Risk Events

  • USD CPI
  • USD Unemployment Claims
  • GBP GDP 
  • USD Prelim UoM Consumer Sentiment
  • USD Prelim UoM Inflation Expectations

For more information and details see the TIOmarkets economic calendar.  

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets.com

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