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Inflation data is in the news today on two fronts: the fastest rise in UK CPI since November 2014; and the upcoming September US CPI report. With repsect to the former, it’s evident that the sharp decline in the British Pound over the past several months has started to filter into higher living costs for British consumers.
In turn, with the BOE already providing an aggressive amount of monetary support, it may be forced to temper its dovish enthusiasm if inflation figures keep spiking. Reflexively, the British Pound selloff may be hitting pause because the BOE might not be as dovish in the future because the British Pound selloff may have materially changed the BOE’s inflation outlook. Circuitous logic perhaps, but it’s the theoretical underpinning of the market right now.
For the US Dollar, energy prices are very much relevant to today’s CPI report. A look at Crude Oil prices over the last year show how the dramatic swings can impact the basket of goods measured: energy prices were down -20% y/y in June 2016; and if they were to end the year at their current levels (around $50-51/brl), Crude Oil were to have posted a +45% y/y performance come December 2016.
Accordingly, the Fed may be getting the data that it’s looking for: a rise in inflation figures; the Fed has already achieved the labor market side of its dual mandate. Fed funds futures are pricing in December 2016 as the most likely period for the next 25-bps rate hike, and today’s inflation figures should help keep expectations firm.
Speaking of oil, it’s time to pay attention to Crude Oil’s symmetrical triangle on the H4 timeframe, especially in context of USD/CAD’s recent selloff. See the video (above) for technical considerations in EUR/USD, GBP/USD, USD/JPY, USD/CAD, Crude Oil, and the US dollar Index.
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