US CPI numbers will be the catalyst the markets desire

Fundamental View

Yesterday saw a fairly muted session with only the Department of Energy Inventory release causing some unexplained price action. As Yellen’s commentary from the previous day was still fresh in the mind of analysts and traders alike we saw the majority of assets calm in the wake of her testimony to congress on Tuesday. Although Yellen was scheduled to speak again to the Senate yesterday it was muted in importance as this was essentially a repeat of the previous day’s statement, with no alterations made. Many are still analysing the hawkish/dovish interpretations of the statement but traders appear to be loath to commit to positions. The EURUSD short trade is currently fatigued with evidence in market price showing that although Greek risk is relatively high and the dollar is leaning more towards the bullish side, price has been reluctant to move. The Crude Oil release beat expectations with a print of 8.427m barrel build against the expected 4m; this was also in line with the API inventory print from Tuesday night. The only draw-downs were on the gasoline number and also refinery utilisation, printing -1.30% against the expected -0.35% for the latter. Price headed lower initially but saw analysts flurry to attempt to explain the subsequent rebound higher, which drove crude from its lows at $48.43 per barrel to the overnight high of $51.28 per barrel; many have attributed this to the slight miss on the API release or Al Naimi's positive comments on demand.

Today’s View

This morning saw the release of German Unemployment figures with a better than expected print on the headline figure but flat at 6.5%. This did not spark much of an immediate effect in the EURUSD but we saw a brief grind higher, possibly accounting this data as part of the fundamental drivers for the leg up. The initial muted reaction is most probably due to the lack of concern surrounding this number. Without a major increase in unemployment the German figure, holding the best employment record in Europe currently, the smaller contained ebb and flow of this reading is largely ignored. This afternoon we have US Inflation numbers; the annual reading is predicted to print a figure of -0.1%, the first negative number since 2009. This is of course mainly to do with the fall in the price of oil and energy. As the lower price in crude begins to filter through the system into lower costs for producers and manufacturers we will begin to see this affect the Core reading. Analysts have noted, however, that the price change in oil usually takes a month to affect the inflation numbers on a monthly basis. With the recent stabilisation in price we could see inflation level out and stabilise in the summer. The core annual reading is expected today to print 1.60%. These inflation figures will be the main catalyst for market movement today with traders using this information to make tweaks to their Fed rate hiking expectations. We also have Durable Goods and Initial Jobless Claims posting at the same time; it is likely that inflation will drive the move this afternoon however, should the CPI be an non-event, attention should be paid to Initial Jobless Claims due to the emphasis on unemployment in her semi-annual testimony.