CPI Preview: Can we get a 7?

The headline print is expected to be the highest in 40 years at 7.0% YoY

Uptrend 2

On Wednesday, the US will release the December Consumer Price Index (CPI).  The headline print is expected to be the highest in 40 years at 7.0% YoY (some forecasts are higher) vs a 6.8% YoY reading in November.  The Core CPI print for December, which excludes food and energy, is expected to be 5.4% YoY vs 4.9% YoY in November.

Forecasting 2022 inflation: Transitory no more?

Prices on everything from housing to automobiles to appliances have been going through the roof lately! What began as the Fed increasing money supply and dropping interest rates to help businesses and families get through the pandemic, has turning into a spending spree.  And why not?  People and companies have more money, thus creating more demand, so businesses will charge higher prices. Higher demand equals higher inflation.

What is inflation?

But demand isn’t the only reason inflation is surging.  As a result of the pandemic, factories throughout the supply change were shut down (for various periods of time).  Now, as demand has picked up, everyone in the supply chain is struggling to get what they need to produce their products.  Less supply equals higher inflation.

All this inflation has put pressure on the Fed, which targets 2% for inflation.  Until Fed Chairman Jerome Powell’s last testimony, the Fed had insisted that the recent high inflation was transitory.  However, their tune has changed.  At the last FOMC meeting on December 15th, 2021, FOMC members moved from ending bond purchases in June to ending them in March.  In addition, the dot plots moved from forecasting 1 rate hike in 2022 to forecasting 3! And markets are currently pricing in 4 by the end of the year!  As a result of the now hawkish Fed, 10-year yields reached 1.808%, the highest level since January 2020 (pre-pandemic). 

Central Banks: Liftoff in Focus?

On December 15th, 2021, GBP/USD broke higher out of a descending wedge near 1.3250.  One week later the pair pulled back to test the top trendline of the wedge near 1.3200.  Support held and it was off to the races for GBP/USD.  In one month, the pair gained 400 pips to 1.3603, retracing the entire wedge.  Price is currently hovering near the 61.8% Fibonacci retracement level from the highs of October 28th, 2021 to the lows of December 8th, 2021, near 1.3565.

20220110 gbpusd 240 ci

Source: Tradingview, Stone X

 

Trade GBP/USD now: Login or Open a new account!

• 
Open an account in the UK
• 
Open an account in Australia
• 
Open an account in Singapore

 

If CPI comes in hotter than expected, watch for GBP/USD to give back some of those gains.  Good horizontal support below is at 1.3375.  If CPI comes in under 7%, watch for GBP/USD to continue moving higher.  Resistance above is at 1.3711.

Markets are looking for a 7% print for CPI on Wednesday, which would be the highest in 40 years.  The Fed is hoping for less, as a plateau would give them some breathing room on tapering and/or hiking rates.  Be ready for either result!

Learn more about forex trading opportunities.



Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.