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Has US inflation peaked?

We get the key release of the week today with the latest US consumer price figures. This is now probably the single most important data for global markets.

The headline annual CPI number is expected to fall to 8.1% from the 40-year high of 8.5% in March. This would be the first time the headline figure has fallen since August last year.

Is this a major psychological moment for markets? Have we finally reached “peak inflation”?

Breakeven forecasts for the next five and ten years are dropping sharply, below the significant 3% level. Other measures, for example the New York Fed’s latest survey of consumer expectations, have also showed a down tick.  The longer-term question beyond this is really the speed at which prices might return to 3% which is the top of the Federal Reserve’s target band.

It will certainly be a major shock if the headline continues to rise.

There will be much focus on the core reading which is forecast to fall to 6.1% from 6.5%. This data excludes food and fuel which continue to be roiled by the Ukraine conflict. Monthly figures have actually dropped in each of the last two months, but economists polled by Bloomberg predict a month-on-month rise. Of course, this does not help the “peak inflation” narrative. On the flip side markets will take another fall very positively.

Dollar remains near long-term highs

The greenback extended its bullish run in the US session, closing near 104 on the DXY, but has pulled back overnight. 

DXY teases 104

The widely watched US 10-year Treasury yield has dipped below the key psychological 3% level after printing a cycle high at 3.20% on Monday.  Commodity currencies especially have been under pressure recently with WTI crude notably trading under $100 earlier in yesterday’s session.

Markets remain concerned about the China Covid lockdowns, recession risk and rising rates. The CAD, similar to the aussie, has little opportunity to avoid this negative backdrop too. Loonie drivers include the VIX which remains high despite a mild improvement in major equity markets and oil remains soft as the EU struggle to agree on a Russian oil ban.

USD/CAD pushed up again yesterday’ to a high at 1.30519 and prices are currently trading around 1.30. Bulls need to keep above the prior long-term resistance above 1.29. But a break under 1.27137 is really needed to change the technical picture. Resistance is the 200-week SMA at 1.3040. The next upside target above is 1.31124.

USDCAD approaches key resistance levels

 

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