USD pauses rally before CPI data

USD rally pauses as today’s CPI data expected to show inflation has slowed. Equities, precious metals and commodities all higher amidst USD weakness. China CPI overnight came in stronger than expected. Further hawkish comments from ECB members today with ECB chief Lagarde due to speak next. 

Key Factors for Today

• USD pauses ahead of CPI data

• Stronger China CPI

• Equities see better start 

• Oil prices higher ahead of EIA release

• JPY & EUR leading in FX 

• Gold bouncing off lows

• Further hawkish ECB comments

Coming Up

• Lagarde up next 
• US CPI 

USD Weaker Ahead of US April CPI  

Traders brace for the main data event of the week today with the release of US CPI for April, following China CPI overnight which saw both core and headline readings beating expectations. 

Given the hawkish outlook from the Fed at its last meeting, markets are poised precariously ahead of the release. If the data shows that prices rose above forecasts again In April, equities are likely to head sharply lower as US yields and the US Dollar trade higher. However, there has been plenty of market chatter recently suggesting that inflation might already have peaked. 

The US Dollar has certainly been trading with a less bid tone this week, suggesting some caution ahead of the release. Headline inflation is expected to have risen by just 0.2% last month, compared with the 1.2% increase we saw in March. If such a slowdown in consumer price growth is recorded, this could well fuel some corrective action in USD near-term, allowing equities and risk assets to rebound. 

Equities Mark a Better Open on USD Weakness

Equities look set to benefit today should the US CPI come in weaker than expected. US equities have found better demand at recent lows which has led to better sentiment elsewhere. In early Europe, the FTSE is up around 0.4% while the Dax is trading roughly flat so far following a retracement lower from yesterday’s highs. Further hawkish comments from ECB’s Muller will no doubt create some drag on the DAX. Muller said that it’s appropriate for the ECB’s APP to end by July and noted that a first rate hike shouldn’t be far behind. Muller also voiced support for sending rates back into positive territory by year end. Echoing recent comments from other ECB officials. Lagarde is now due to speak today and traders will be keen to see if we hear any further hawkish sentiment. 

JPY & EUR Take the Lead in FX

JPY and EUR have been the two best performing G10 currencies across late Asia and early Europe today. Both are benefiting from the current pause in USD bullishness. Should today’s CPI reading highlight a slowdown in inflation growth, this trend is likely to develop further. AUD and NZD are once again the weaker currencies. Australian consumer confidence released overnight was seen falling to -5.6% from -0.9% last month 

Gold & Silver Rally as USD Pauses 

Gold and silver are rallying off the lows today with gold rebounding from its lowest levels since February this year. Again, the main focus here is today’s CPI reading. If USD is seen trading lower in the wake of the data, plenty of scope for a short squeeze higher in gold and silver. 

Oil Bouncing Off Lows Ahead of EIA Update 

Crude prices have risen by 3% in early Europe today following heavy selling yesterday and Monday. Looking ahead today traders receive the latest EIA inventories update which is expected to report a 1 million barrel drawdown, which should help lift prices further if confirmed.