Feb 17

U.S. Consumer Prices (13:30 GMT)

Expectations: 1.6%

Prior: 1.5%

Fundamental Outlook

Consumer prices in the world’s largest economy are expected to rise an annualized 1.6 percent in January after climbing 1.5 percent the month prior. Indeed, a reading in line with economists’ forecasts would mark the highest level since May 2010, and could fuel momentum in the greenback against most of its major counterparts.

Despite optimism amongst economists regarding an uptick in consumer prices, it is worth noting that prices as of late have been well below the Fed’s target of 2 percent and was likely subdued in January amid slack in the economy. I expect energy prices to be one of the driving components of inflation due to the fact that they have been rising since the summer.

Ahead of the release, Federal Reserve Bank of New York First Vice President Christine Cumming said that consumer prices in the U.S. likely to remain “relatively low” for some time as the economy recovers, while noting that “while trend inflation is quite low at the moment, we see it likely to be near the low point of this cycle.” All in all, as concerns regarding consumer prices remain, a disappointing report could lead most major currencies to push higher against the greenback. However, a better than forecasted report could be the catalyst needed for a clear breakout in the dollar.

Technical Outlook

AUDUSD Daily Chart

Will_U.S_Consumer_Prices_Top_Expectations_and_Fuel_Momentum_in_the_Dollar_body_audusd.png, Will U.S. Consumer Prices Top Expectations and Fuel Momentum in the Dollar?

Charts Created Using FXCM’s Strategy Trader – Prepared by Michael Wright

AUDUSD: The pair managed to break below its rising trend line that remained intact since June 2010. Any rallies going forward should be well capped by 1.0200. Going forward, I will look to enter into a short position on a daily close below the 100-day simple moving average which will expose the 0.97 area.

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Written by Michael Wright, Currency Analyst

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Michael Wright authors FX Headlines, Fundamentals vs. Technical’s, Intraday Trading, Weekly Spotlight, and Forex Trading Weekly Forecast