FOREX
The US dollar inched higher during early Tuesday trading, anticipating the release of US inflation data for January later in the day. Analysts anticipate a moderation in the consumer price index, although it is expected to remain significantly above the Federal Reserve’s 2% target. The consensus among analysts is that US inflation will reach 3.7% in January. If these forecasts materialise, the likelihood of a Fed rate cut in March will diminish considerably, with May also appearing increasingly remote. Even June is now viewed sceptically for a 25 basis points rate cut, given that inflation persists above target and the economy is demonstrating a resilience that few had anticipated. In light of these developments, there is potential for further appreciation of the dollar against other major currencies.
Ricardo Evangelista – Senior Analyst, ActivTrades
Source: ActivTrader
EUROPEAN STOCKS
European markets opened slightly lower from Frankfurt to Madrid on Tuesday, extending the uncertain sentiment registered over uneven performances in Asia, as investors brace for a key US inflation report.
All eyes will be on today’s US CPI data due later in the afternoon, with both short-term traders and long-term investors expecting volatility spikes across a wide range of assets following the publication of one of the key indicators for the Fed’s monetary policy.
This report is expected to show another decrease in price pressure, from 3.4% to 2.9% (YoY), confirming the “soft-landing” scenario many anticipated.
Decelerating inflation would be perceived as good news for stock traders, and as a green light to take equity benchmarks to higher tops as the chance of a more dovish approach from the Fed significantly increases.
However, if this afternoon’s figures come in higher than anticipated, we could expect sharp bearish price action on equity markets, especially as most benchmarks are already trading close to historical levels.
The STOXX-50 index is trading just above its short-term bullish trendline, over 4,715.0pts.
Healthcare stocks are the only ones in the green, while the pan-European index is primarily led lower by tech shares this morning.
We don’t expect any significant breakout before this afternoon’s data. The 4,700.0pts/4,715.0pts should be seen as a strong support level for the markets, while 4,750.0pts remains as the most significant resistance in the short term.
Pierre Veyret – Technical analyst, ActivTrades
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