In the next few hours, all attention will be focused on the United States as investors and traders wait for the inflation report for the month of March.

Expectations

Indicator Forecast Prior
CPI MoM 0.3% 0.4%
Core CPI MoM 0.3% 0.4%
CPI YoY 3.4% 3.2%
Core CPI YoY 3.7% 3.8%

 

The MoM CPI and Core CPI are expected to rise by 0.3%, which is slightly less than the previous month.

Investors will closely watch the YoY (year-over-year) figures, while the CPI (consumer price index) is expected to increase to 3.4%, up from 3.2%. If this prediction holds true, it would be the second consecutive monthly increase and the highest reading since December of last year.

The core CPI YoY is expected to slow further to 3.7%, the lowest core inflation reading since April 2021, marking a year of consecutive decline.

Services points to slower inflation

Last week’s ISM Services PMI report showed that there is no inflation pressure, but disinflation is accelerating. The Prices Paid Index for March dropped to its lowest level in four years at 53.4, down from 58.6 in February.

There is a strong correlation between the Services Prices Index and the YoY CPI, which means that today’s inflation data may come out slower than expected.

Impact on markets

There are different possible outcomes for today’s release and how markets will react to it.

1- A better-than-expected report: This means that all datasets, including the MoM and YoY, show higher outcomes. If this happens, there will be a significant selloff in stocks, while the US Dollar is likely to rally across the board. This is because fears will increase that the Federal Reserve may need to hold for longer and potentially do more if needed.

2- A less-than-expected report: This means that there is a slowdown in both CPI and Core CPI on MoM and YoY basis. If this happens, there will be a notable selloff in the US Dollar. However, equities may rally as such outcomes keep the possibility of a 25-bp rate cut in June.

3- Mixed outcomes: This scenario is more likely. The MoM data may show some increase, while the YoY may continue to slow down. A mixed report would shift the attention more towards the YoY Core CPI. If it continues to slow down, June rate cut bets will rise once again and vice versa.

DXY technical outlook

The US Dollar was unable to maintain its gains from last week and has continued to decline since the beginning of this week’s trading, falling below 104.0 once again. The time/price method remains unchanged, and the bearish outlook stays the same as long as the index trades below last week’s high.

Looking at the downside, there is a support area between 103.80 and 103.65 that should be closely monitored. A break through this area would strengthen the bearish outlook, with the possibility of retesting 103.40 and 102.90 in the coming days.

 

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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