Tonight at 19:30, investors worldwide will turn their attention to the eagerly anticipated release of the US CPI inflation data. This crucial economic indicator is poised to play a significant role in shaping the near-term outlook for various financial assets, most notably, Gold, EURUSD, and GBPUSD. Let’s delve into the factors at play and the possible scenarios to expect:
Gold’s Steady Performance:
Gold remains poised for potential support in light of the ongoing geopolitical tensions in the Middle East and the Federal Reserve’s dovish stance this week, which has led to reduced Treasury yields. In addition, the recent US PPI data release, while showing an increase, revealed a slower pace compared to last September, ultimately having a limited impact on Gold.
Focus on CPI Inflation Data:
Given the current market climate, all eyes are on the US CPI inflation data scheduled for release tonight at 19:30. Investors are eager to gather more insights into the state of inflation and to assess the Federal Reserve’s interest rate policy in the wake of a week filled with dovish commentary from Fed officials. Projections indicate that the upcoming data might be slightly lower than the previous period, with particular attention on the CPI Core inflation data, which provides a more accurate representation of economic inflation, excluding energy prices. In the various scenarios that may unfold:
If both CPI and CPI Core inflation figures are reported lower than expected and below the previous period, this suggests that inflation remains under control. In such a scenario, the Federal Reserve’s current strategies to mitigate inflation seem effective, diminishing the likelihood of another interest rate hike. This outcome could lead to a decline in the Dollar and Treasury yields, potentially resulting in a stronger performance for Gold, EUR, and GBP. Investors may find this an opportune moment to explore buying opportunities.
In the event that CPI and CPI Core inflation data are in line with or higher than expectations but still fall short of the previous period, it indicates that while inflation has increased as compared to projections, it continues to exhibit a slower pace of growth than previously recorded. This scenario could entail a moderate increase in the Dollar and Treasury yields, only to decline shortly afterward. In such a context, Gold, EUR, and GBP might present viable options for investors, particularly for those seeking buying opportunities following a brief dip.
Should CPI and CPI Core inflation show a substantial increase compared to the previous period, the data signals a rapid surge in inflation. This puts pressure on the Federal Reserve to resume rate hikes. Consequently, the Dollar and Treasury yields may witness significant surges due to fears of another rate hike, possibly in November 2023. Such a scenario could lead to a decline in Gold, EUR, and GBP, making it advisable for investors to consider selling opportunities.
While personal perspectives can vary, a tendency towards Scenario 1 and 2 is evident. However, it is essential to note that these are subjective assessments. In the current context, only a substantial increase in CPI inflation compared to the previous period is likely to lead to a significant drop in Gold, possibly within the range of 20-30 pips. If inflation experiences a more moderate increase closer to the previous period, the corresponding drop may be limited to about 10 pips. Additionally, market participants should not overlook the concurrent release of the weekly Unemployment Claims data, set to be published alongside the CPI inflation data at 19:30.
It is important to highlight that geopolitical tensions in the Middle East continue to be the pivotal factor influencing Gold’s performance at this juncture. In the absence of significantly increased inflation that would prompt the Federal Reserve to take action, other data may be inconsequential to Gold’s market dynamics.
In conclusion, tonight’s CPI inflation data holds immense significance, potentially influencing various asset classes. As the financial markets await the results, the interplay of economic indicators, geopolitical factors, and central bank policies will shape the landscape of investments in the coming weeks. Investors must remain vigilant, adapt to unfolding scenarios, and exercise caution in making their trading decisions.