Dollar Preps For CPI Report Tomorrow

The dollar made another push against the majors after the import price index showed a rise in both import and export prices. The Import Price Index compiles the prices of goods bought by the US from other countries as well as the prices of goods that are sold by the US to foreign countries. This report provides good indications as to what the CPI and PPI report will say because it measures inflationary trends on bought and sold international goods. The higher the prices are for imports, the higher the cost for the manufacturer and ultimately the consumer which leads to the theory that CPI and PPI will rise if the Import Price Index rises. Remember, the Fed is watching inflation like a hawk and if this report is indicative of higher inflation, look for the Fed to hold those rates firm.

Jobless claims, although not usually watched by the market, also came out good for the buck. However, with all the attention on the labor market, it seems logical that even a small report like this would have an impact on the market. The consensus for the jobless claims report was 320k. The forecasting range was 310-330k. So what was the actual number? 304k! You can see that that’s much lower than not only the consensus of 320k, but also the lower end of the forecasting range of 310k. The unexpected drop of 20k jobless claims from last month suggests that there might be renewed strength in the labor market.

Coming Up:

US New York Empire State Index
8:30 am ET; 13:30 GMT
Previous= 26.7; Consensus= 18; Forecast Range= 15-25

This is a monthly survey of New York manufacturers. Somewhere around 175 executives (CEOs and such) are sent a questionnaire to report any changes in a bunch of indicators from the previous month. This is used to get a feel for the business environment in that area. Since manufacturing reports (ISM) and factory job employment have been soft in the recent months, look for the market to watch this closely. Last month this index was at 26.7 which was its highest reading in 2 years!

US Consumer Price Index (General and Core)
8:30 am ET; 13:30 GMT
(General) Previous= -0.5%; Consensus= 0.2%; Forecast Range= 0.1-0.3%
(Core) Previous= 0.1%; Consensus= 0.2%; Forecast Range= 0.2-0.2%

Notice that the forecasting range for both CPI reports are very narrow. This means that there is a pretty strong agreement as to what the numbers will be tomorrow. Any suprises from this should cause a nice movement in the buck whether it be positive or negative. CPI has been soft lately because of lower oil prices but now that oil is starting to bounce back up, a higher CPI report seems plausible.

US Treasury International Capital (TIC) Data
9:00 am ET; 14:00 GMT
Previous= 65.1B; Consensus= 65.0B

US Industrial Production and Capacity Utilization Rate
9:15 am ET; 14:15 GMT
(Industrial Production) Previous= 0.2%; Consensus= 0.1%; Forecast Range= -0.3%-0.3%
(Capacity Utilization) Previous= 82.2%; Consensus= 82.1%; Forecast Range= 81.8%-82.4%

Chart Analysis:

EUR/USD

The EUR/USD is resting on 3150 like I thought it would and I think the rest of the movement will be dependent on the fundamental data tomorrow. The pair could move up on bearish US news to as high as 3350 or the pair could fall if the US news is good to around 3030. Daily stochastics is heading down with plenty of room for selling power while the 4hr stochastics is now in oversold territory. It’s a toss up from here and now it’s up to the news to determine the direction of the pair.

GBP/USD

The Cable is still stuck in a range and it probably won’t be until tomorrow that we’ll see it hit one of my inflection points. Remember I’ve been saying that I will look to sell at around 9800 and look to buy at around 9500 because I don’t think the Cable will break that range until another major fundamental catalyst comes along. If CPI is really high tomorrow or all the US news turns out to be bullish, then I could see the possibility of the Cable going to as low as 9350 so again, any decision I make will be dependent on what the Cable does next.

USD/CHF

My Swissy trade idea from yesterday is now triggered at 2130. My stop is behind the 50% Fib retracement level and it still looks like a good trade. The 4hr stochastics is in overbought territory and the daily stochastics is almost in overbought territory. I think this trade still looks good so I’ll hold onto it. I may decide to exit before the US news tomorrow depending on where the price is and what the market is doing.

USD/JPY

My Yen trade is also active now and the divergences I talked about yesterday are still ok. Stochastics on both the 4hr and daily chart are in overbought territory so I will continue to hold on to the trade since it still looks like the Yen will drop.

Conclusion:

With 4 US economic reports out tomorrow, we should see some nice movement. We will most likely see the strongest movement from the CPI report since it is a major inflation tool that the Fed uses. We also want to see if the 4 US reports agree with each other whether it be positive or negative. This will give us the most trend movement and should provide plenty of day trading opportunities if this happens.