Please note ThinkMarkets does not provide CFD services to residents of the US.

Please note ThinkMarkets does not provide CFD services to residents of the US.

Learn To Trade
 
Indicators & Chart Patterns

Deepen your knowledge of technical analysis indicators and hone your skills as a trader.

Find your detailed guides here
Trading Glossary

From beginners to experts, all traders need to know a wide range of technical terms. Let us be your guide.

Learn more
Knowledge Base

No matter your experience level, download our free trading guides and develop your skills.

Learn more
Learn To Trade

Trade smarter: boost your skills with our training resources.

Create a live account
Market Analysis
 
Market News

All the latest market news, with regular insights and analysis from our in-house experts

Learn more
Economic Calendar

Make sure you are ahead of every market move with our constantly updated economic calendar.

Learn more
Technical Analysis

Harness past market data to forecast price direction and anticipate market moves.

Learn more
Live Webinars

Boost your knowledge with our live, interactive webinars delivered by industry experts.

Register now
Special Reports

Engaging, in-depth macroeconomic analysis and expert educational content from our in-house analysts

Learn more
Market Analysis

Harness the market intelligence you need to build your trading strategies.

Create a live account
Partnership
 
Affiliate Programme

Grow your business and get rewarded. Find out more about our Affiliate Programme today.

Learn more
Introducing Broker

ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates.

Learn more
Proprietary Trading

Partner with us to build your own prop trading business. Enquire with our account managers today.

Learn more
White Label

We supply everything you need to create your own brand in the Forex industry.

Learn more
Regional Representatives

Partner with ThinkMarkets today to access full consulting services, promotional materials and your own budgets.

Learn more
Refer a friend

Receive $50 for you and your friend when you convert them into an active trader of ThinkMarkets.

Learn more
Partnership

Plug into the next-gen platforms and the trades your clients want.

Partner Portal
About ThinkMarkets
 
Sponsorships

Check out our sponsorships with global institutions and athletes, built on shared values of excellence.

Learn more
About Us

Find out more about ThinkMarkets, an established, multi-award winning global broker you can trust.

Learn more
Careers

Discover a range of rewarding career possibilities across the globe

Apply now
ThinkMarkets News

Keep up to date with our latest company news and announcements

Learn more
Trading Infrastructure

When it comes to the speed we execute your trades, no expense is spared. Find out more.

Learn more
Contact Us

Our multilingual support team is here for you 24/7.

Learn more
About ThinkMarkets

Global presence, local expertise - find out what sets us apart.

Create a live account
Log in Create account

US interest rates in balance as traders await CPI data

Carl Capolingua Carl Capolingua 10/05/2023
US interest rates in balance as traders await CPI data US interest rates in balance as traders await CPI data
US interest rates in balance as traders await CPI data Carl Capolingua

Download Carl's Bear Market Survival Guide e-Book:
https://www.thinkmarkets.com/au/lp/2023-bear-market-survival-guide-ebook/


One of the most important economic data releases on the monthly calendar is the Consumer Price Index (CPI).

The CPI measures the price change of a basket of commonly consumed goods and services in the US economy. If the basket of goods and services is increasing in price it is referred to as "inflation". Aha I hear you say! The dreaded 'I' word! 

It doesn't happen very often, but if the basket of goods and services is decreasing in price it is referred to as "deflation". Given in the current environment the price of pretty much everything we buy feels like it's going up, it's difficult to even contemplate deflation. But it's not as uncommon as you might think. We last saw three consecutive negative CPI prints back in June 2020 after the COVID-19 pandemic broke.

Fast forward to today, and ironically, the fallout of the same pandemic is causing an extended period of inflation. It peaked at just over 9% p.a. in July last year and had cooled to 5% p.a. as of last month's reading of the March CPI. It does on first pass appear inflation has moderated significantly. 

A couple of points here. Firstly, in the period since last July, the decline in the rate of inflation is not deflation. Yes, annualised inflation is coming down, but it's still positive. Prices are still rising. Rather, we refer to periods such as these as "disinflationary".

Given the high starting point, disinflation is still welcome as it means the negative impacts of inflation, for example diminished spending power and ever spiralling wage demands to keep up with inflation, are cooling. 

Which brings me to my second point. Whilst the disinflationary process has begun, inflation remains too high. Certainly, it's way above the Federal Reserves preferred 2% p.a. target, and they have been both very vocal and very active in trying to bring it down. 

After all, inflation imposes a substantial tax on the economy. Unlike government taxes, inflation a tax which very, very few benefit from – and this is why the Fed wants it down, and down quickly.

Us interest rates vs inflation CPI
click to enlarge image

So, Wednesday's inflation data will be very closely watched by the markets for further signs the rate of price increases in the US economy is dissipating. Consensus among economists is for a monthly rate of inflation for April of 0.4% to keep inflation for the 12 months to April steady at 5% p.a. 

Speaking in terms of annual rates, looking at the April CPI data due Wednesday, anything from 4.9% p.a. and lower will be positively received by stock and bond investors. It will also likely be bearish for the US dollar as any substantially lower inflation print will reduce the need for the Fed to continue with its current rate hike cycle.

Conversely, anything from 5% p.a. and over will dash hopes rates have peaked, and therefore likely weaken stock and bond markets while simultaneously strengthening the US dollar. With each of the above scenarios in mind, there are few interesting ways traders may wish to trade Wednesday's CPI data.
 

How to trade Wednesday's US CPI data

If the CPI rate is better than expected, one of the biggest beneficiaries will be the NASDAQ. The NASDAQ index contains stocks which are pre-or-early earnings cycle, and therefore have a higher reliance on debt funding. This makes them particularly sensitive to interest rates. Lower rates, equals lower debt financing costs, and therefore higher profits and returns to shareholders.

Nasdaq Composite (COMP) technical analysis
click to enlarge image

ThinkMarkets NASDAQ 100 or "NAS100" gives traders the ability to trade long or short the top one-hundred NASDAQ companies. The chart shows the recent trend in the NAS100 appears to have switched from a long-term downtrend to an uptrend since the October 2022 low. 

Major resistance is being encountered, however, with 13715 a key upside supply point. This price would be a logical target should the NAS100 break higher out of the recent trading range between 12725 and 13300. Traders may wish to instigate longs in the NAS100 upon a positive CPI print to take advantage of a break towards 13715 with stops set below the last point of demand at 12937.

A forex trade which would also take advantage of a weaker than expected CPI print would be a long on the GBPUSD. The GBP is the strongest currency on a relative basis out of the majors against the US dollar and it stands to appreciate further if the CPI is lower than expected.

gbpusd chart pound vs us dollar technical analysis cable chart
click to enlarge image

The recent price trend in the GBPUSD is up, and even more importantly, the price appears to have successfully broken out of the range between 1.840 and 1.2448. Traders could look for longs targeting the next key point of supply around the April 2022 breakdown point at 1.30. In such a scenario, stops could be set under the last point of demand at 1.2435, or more conservatively below the next lower point of demand at 1.2344.

Alternatively, if the CPI print comes in hotter than expected trades which favour longs of the US dollar are likely to see some success. In this regard, I suggest looking at going long the USDJPY as the JPY is the weakest currency on a relative basis out of the majors against the US dollar and it stands to depreciate further if the CPI is higher than expected.

usdjpy technical analysis
click to enlarge image

The USDJPY is in a short-term uptrend which is part of a broader double (rising) bottom pattern across the major swing lows in January and March. It has retraced to the bottom portion of the recent trading range. Longs could target the top of this range around 137.91 with stops set below the last point of demand at 133.49.


Learn More, Earn More!

Want your portfolio questions answered? Register for next week's Live Market Analysis sessions and attend live! You can ask me about any stock, index, commodity, forex pair, or cryptocurrency you're interested in.

REGISTER: Live Market Analysis Webinars - Thursdays 1pm AEST / Wednesdays 3am GMT, Friday 12pm AEST / Thursdays 2am GMT

You can catch the replay of the last episode of Live Market Analysis here:
Lithium prices tumble again...how low can they go? (Try half!)
 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

Related articles:

Weekly outlook: From US inflation spikes to E...

By Alejandro Zambrano

15/04/2024

Weekly Brief: Oil Surges, Gold Hits Record, a...

By ThinkMarkets

08/04/2024

How to navigate Friday's NFP: special FX and ...

By Alejandro Zambrano

03/04/2024

Identify market movements for the week – 1 Ap...

By Mohamed Hassan

01/04/2024

RDDT soars: here are the levels to watch in c...

By Alejandro Zambrano

26/03/2024

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Back to top