US CPI rates slowdown, yet recession worries remain

The USD weakened across the board yesterday as the headline CPI rates for March slowed down more than expected implying that inflationary pressures have eased further in the US economy, yet on a macroeconomic level we must note that the core CPI rate on a year-on-year level actually ticked up. Furthermore, we note that the release of the Fed’s meeting minutes revealed that the Bank’s staff had warned about a possible recession and that despite some hints of moderating inflationary pressures, the bank still decided to hike rates once again. Also, the minutes showed that the bank will take into account the cumulative and lagged effects of its monetary policy tightening in deciding the course of its future action, yet there seemed to be little if any hints of the bank’s intentions in the next meeting. It should be noted that the market worries about a possible recession in the US economy seemed to intensify overshadowing the optimism created by the slowdown of the US CPI rates for March, initially. It was characteristic that despite some initial support US stock markets ended their day in the reds. For the time being, we note that the market seems to continue to expect the bank to hike rates by 25 basis points in its May meeting and to remain on hold for the June one. Also, on the monetary front we note BoC’s interest rate decision yesterday to remain on hold, as was widely expected keeping rates at 4.50%, while in its accompanying statement, the bank stated that it “expects CPI inflation to fall quickly to around 3% in the middle of this year”. Overall, we expect the bank to remain on hold in its following meeting and BoC’s stance may weaken the CAD as it would cause monetary policy outlooks to diverge. Also in the FX. Across the Atlantic, we draw traders’ attention to GBP as UK’s GDP rates are to be released, while on the monetary front, we note Hugh Pill’s speech later today. It should be noted that BoE Governor Bailey yesterday stated that the bank does not see any concerning signs in the markets. The overall statement seemed to sound optimistic and to prepare the ground for more rate hikes. Remaining in the FX market, we note that Australia’s employment data were better than expected for March, as the employment change figure did not drop as widely as expected and the unemployment rate managed to remain unchanged. Also, we note the better-than-expected Chinese trade data for the past month, especially the wide improvement of the export growth rate, which managed to contain the drop of the trade surplus. The strong exporting sector has proven its worth once again and seems to continue to be supporting the Chinese economy.

On the commodities front, we note the rise of oil prices yesterday despite also a rise in US oil reserves being reported. The increase in US oil reserves, seems to have been a result of a strategic petroleum reserve release, orchestrated by the US government. Market worries seem to exist for the adverse effects on the demand side of the commodity from a possible recession in the US economy and should they intensify we may see them having an adverse effect on oil prices. On the supply side, analysts are highlighting the prospect of a tight second half of the year and for today we expect oil traders to turn their attention towards the release of OPEC’s monthly report.

EUR/USD continued to rise reaching the 1.1000 (R1) resistance line and seems to have stabilized a bit after hitting the upper Bollinger band. We tend to maintain a bullish outlook for the pair as long as it remains above the upward trendline incepted since the 20 of March. Also, we note that the RSI indicator is just below the reading of 70, implying a rather bullish sentiment on behalf of the market for the pair. Should the bulls maintain control as expected, we may see EUR/USD breaking the 1.1000 (R1) resistance line and aim for the 1.1140 (R2) resistance level. Should the bears be in charge, we may see the pair reversing direction breaking the prementioned upward trendline as well as the 1.0855 (S1) support level.

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During today’s European session, we note the release of Germany’s final HICP rate for March, while from the UK we highlight the release of the GDP rates for February and the manufacturing output growth rate for the same month. From the Czech Republic, we note the release of the CPI rates for March and from the Eurozone the industrial output growth rate for February. In the American session, we get from the US the weekly initial jobless claims figure and PPI rates for March. On the monetary front, we note that BoC Governor Tiff Macklem and BoE’s chief economist Pill are scheduled to speak, while oil traders may be more interested in the release of the OPEC monthly oil market report.