What impact will CPI have on the outlook for the USD next week?

Giles Coghlan LLB, Lth, MA Financial Source

On Tuesday this week, markets were given a snapshot view of what will happen when the US actually do signal a rise in interest rates. It came about after Treasury Secretary Janet Yellen spoke about the need for the US to raise interest rates. Now the comment was taken out of context, but the market reaction was telling. Markets saw a sharp spike higher in the dollar, US 10 year yields, and downside in gold. This is a dry run rehearsal for what will happen if the Federal Reserve do signal tapering bond purchases this summer. Wise investors will take note for future reference.

Other key events from the past week

AUD: Interest Rate Statement, May 04: The RBA meeting this week was uneventful. The RBA kept the cash rate and three-year yield target unchanged at 0.10% while also keeping its QE program the same. However, labour data remains a key focus for the RBA going forward.

GBP: Interest Rate Statement, May 06: The decision was as expected with interest rates unchanged & asset purchases too. However, looking at the minutes, it is important to note that the BoE has adopted an optimistic outlook for the UK economy. This could provide support for the FTSE 100 from here.

FTSE100: Re-opening gains, May 06: Global indices fell lower on Tuesday, but there was no clear catalyst for the falls. As a result dip buyers stepped in. Some analysts consider the FTSE 100 to remain undervalued and is on course to fill the gap to 7500 by year-end on re-opening gains. Will that be the case?

Key events for the coming week

USD: Inflation data, May 12: The Federal Reserve expects a temporary spike higher in inflation. However, a sharp move higher may have investors pricing in an early US interest rate rise which would support the USD.

Silver: Market in focus, May 15: The silver market is in keen focus right now as the investment group Crescat Capital maintain their bullish bias for the commodity. As long as the price remains above the key support level at 25.80 that should support buyers in the near term.

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Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

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