Inflation in the U.S. is expected to have eased in October to 4.1% from 4.9%, as oil prices have dropped 60% from their peak. If yesterday’s record drop in producer prices is any indication then we may see a similar reduction in the headline inflation number, but an increase in core prices.
Fundamental Outlook
Inflation in the U.S. is expected to have eased in October to 4.1% from 4.9%, as oil prices have dropped 60% from their peak. If yesterday’s record drop in producer prices is any indication then we may see a similar reduction in the headline inflation number, but an increase in core prices. Traditionally easing prices are bearish for the dollar as they beget lower interest rates. However, since the Fed is already anticipated to lower rates to .50% at their next meeting the anticipated increase in consumer purchasing power may create bullish dollar momentum. If that is the case then it would validate the bullish technical outlook for the dollar which is calling for the EUR/USD to fall below 1.2300. Additionally, a rise in core prices could be enough to keep the central bank on hold adding to the bullish dollar story.
Technical Outlook
The euro / dollar trend is down as long as price is below channel resistance and 1.2861 specifically. Still, until a break of the large range (1.30-1.23) that has held since late October, confidence in directionality is low. For now, I am sticking with the triangle count (4th wave complete).
For More Technical Analysis Visit the Daily Technical Report
To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com