US CPI rates imply persistent inflationary pressures

The US CPI rates for January came in higher than expected, implying persistent inflationary pressures in the US economy. The headline CPI rate on a year-on-year level came in at 3.1%, whilst the Core CPI rate on a year-on-year level came in at 3.9%. Both rates tended to highlight our concerns that the market’s expectations of the Fed rapidly easing on its monetary policy agenda, may have been overoptimistic. As such, at the time of this report, market participants are now expecting 4 rate cuts, down from 6 since the beginning of the year, with the first-rate cut expected to occur in June. Yet we maintain our opinion that the Fed may cut three times this year, rather than four. Following the release, the dollar appears to have strengthened, and should the hawkish rhetoric intensify by the Fed, we may see the dollar gaining in the future as well. The UK’s CPI rates for January came in lower than expected, implying easing inflationary pressures in the UK economy. The release could potentially allow the BoE to dial down its hawkish rhetoric, as its current restrictive monetary policy appears to be providing positive results in the battle against inflation. The apparent easing of inflationary pressures in the UK economy, could weigh on the pound. Over in Europe, Germany’s ZEW Economic sentiment figure for February came in better than expected yesterday, which may have alleviated some downwards pressures on the EUR. In the US Equities markets Coca Cola (#KO) reported better-than-expected earnings, which may support the company’s stock price. We also would like to note that Cisco System’s (#CSCO) earnings are due out today.

GBP/USD appears to be moving in a downwards fashion. We maintain a bearish outlook for the pair and supporting our case is the RSI indicator below our chart which currently registers a figure near 30 implying a bearish market sentiment. For our bearish outlook to continue, we would like to see a clear break below the 1.2535 (S1) support level, with the next possible target for the bears being the 1.2440 (S2) support base. On the other hand, for a sideways bias, we would like to see the pair remain confined between the 1.2535 (S1) support level and the 1.2655 (R1) resistance line. Lastly, for a bullish outlook, we would like to see a clear break above the 1.2655 (R1) resistance line, with the next possible target for the bulls being the 1.2760 (R2) resistance level.

WTICash appears to be moving in an upwards fashion. We maintain a bullish outlook for the commodity and supporting our case is the RSI indicator below our chart which currently registers a figure near 70, implying a bullish market sentiment. For our bullish outlook to continue, we would like to see a clear break above the 78.65 (R1) resistance level, with the next possible target for the bulls being the 81.65 (R2) resistance level. On the other hand, for a sideways bias we would like to see the pair remain confined between the 75.25 (S1) support level and the 78.65 (R1) resistance line. Lastly, for a bearish outlook, we would lie to see a clear break below the 75.25 (S1) support level, with the next possible target for the bears being the 71.60 (S2) support base.

Other highlights for the day:

We note in the European session, the release of Norway’s GDP rate for Q4, the Eurozone’s revised GDP rates for Q4 on a yoy and qoq basis and the Eurozone’s industrial production rate for December. During the American session, we note the weekly crude oil inventories figure. In tomorrow’s busy Asian session, we note Japan’s GDP rates for Q4 and Australia’s employment data for January. On a monetary level, we note the speech by ECB President De Guindos, Chicago Fed President Goolsbee, BoC Deputy Governor Mendes and Fed Vice Chair Barr.

GBP/USD H4 Chart

Support: 1.2535 (S1), 1.2440 (S2), 1.2300 (S3)

Resistance: 1.2655 (R1), 1.2760 (R2), 1.2870 (R3)

WTICash H4 Chart

Support: 75.25 (S1), 71.60 (S2), 68.20 (S3)

Resistance: 78.65 (R1), 81.65 (R2), 84.55 (R3)

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