Economic Events Outlook, Dec 12 – What to Expect from US Inflation?

Today, the market is all about trading the fundamentals and the main focus stays on US CPI data. Earlier today, the dollar traded near a one-month high against its peers, supported by a recovery in the US government bond yields. Moreover, a weaker Pound also shifted demand into the dollar since Theresa May called-off the parliamentary voting.

Major Economic Events to Watch Today

Industrial Production m/m – The European industrial production due at 9:00 (GMT) and its expected to jump from -0.3% to 0.2%. For all our new members, it’s a change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. The higher figure is considered good for currency. The market may take a slight impact on the news but I’m not expecting an aggressive movement in Euro.

Capacity Utilization Rate – At 13:30 (GMT), you should see the Canadian capacity utilization rate. It’s a percentage of available resources being utilized by manufacturers, mines, and utilities. Logically, the more use of resources signifies more demand for products and, ultimately, an increasing GDP. Since the figure is expected to be 85.8% vs. 85.5%, the Loonie can stay supported.

CPI m/m – The figures are due at 13:30 (GMT). In the previous report for October, the Consumer Price Index improved by 0.3%, and Core CPI by 0.2%. While the monthly figures were fine, the year over year Core CPI slipped to 2.1%.

Consequently, the Fed’s preferred inflation measure, Core PCE fell to 1.8% y/y. Today, the CPI figures for November will provide fresh input for the Fed ahead of its rate decision. Better inflation will further increase chances of a hawkish FOMC next week.

Why do investors care about CPI?
Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate

Core CPI m/m- The US labor market data was mixed as the market added fewer jobs than expected. However, the unemployment rate remained steady at 3.7%. Most importantly, the average hourly earnings slipped to 0.2% vs. 0.3% forecast. Nonetheless, it was higher than the 0.1% gain in October.

Logically, an increase in average hourly earnings should also change the spending patterns of people. Due to the rise in hourly earnings, we can expect people to spend more. This should trigger demand for US products and the rise in demand leads to a rise in prices. Economists are expecting Core CPI to rise by 0.2% which may not be surprising until and unless we see any major changes before the Fed monetary policy next week.

Let’s say if the CPI and Core CPI figures come out as positive, they may offer us an awesome trading opportunity not only in the dollar but also in gold.

Good luck for today and stay tuned for forex trading signals. All the best!