U.S. headline inflation expected to rise above 2%
Economists are hawkish heading into today's monthly consumer price index report from the U.S. Forecasts are showing that the headline inflation or CPI is expected to rise 0.3% on a month over month basis in December, pushing the year over year annual inflation rate to 2.1% for December 2016. A beat on the estimates or even a match on the estimates could see the U.S. dollar regain some of the lost ground from yesterday as the inflation rate of 2.1% puts it well into the Fed's 2% inflation target rate territory.
The U.S. dollar was beaten down yesterday after surprising comments from Donald Trump, the president-elect
In an interview with WSJ, Trump said that the U.S. dollar was too strong and made references to the recent weakening of the yuan. His comments were seen as a likely shift to U.S. policy on favoring a strong currency over the past decades. It was also unprecedented for a president elect to talk about the currency rates. As a result, the greenback fell sharply yesterday. But the declines could be limited for the near term.
Today's big ticket item will be the monthly inflation report which, by all means is expected to rise above the 2% target rate set by the Fed. This would be a remarkable achievement, although further signs of sustained higher inflation will be required before the Fed will hike rate again.
For the moment, a higher than expected annual inflation rate will be mean that the markets will start preparing for another rate hike from the Federal Reserve which will have its next big meeting including a press conference in March.
How to trade binary
USDJPY has been posting a steady decline since hitting 118.00 few weeks ago. The recent decline is showing signs of exhaustion to the downside as price touched down to 112.60 yesterday. On the 30-minute chart, we see the potential for an inverse head and shoulders pattern taking shape, but price action must be reaching out to 113.53 before posting a decline to 113.00. Should this occur, look to buy daily CALL options at 113.00 for a 21:00 GMT expiry time.
The most perfect scenario is for a decline to 113.00 ahead of the inflation report, in which case, it will make the bullish bias a near certainty as USDJPY will be looking to close higher on the day following a breakout above 113.53 resistance level.
Target price: 113.00
Expiry: 21:00 GMT