Inflation Readings To Fuel This Week’s Forex Moves

Last week, lack of clear signals for the Fed's next move, via FOMC minutes, coupled with dovish remarks from some of the FOMC members, during their public speeches and words at IMF meeting, forced the greenback index (I.USDX) to register consecutive second weekly decline, marking the lowest closing last seen during mid-June and vanishing the early September gains. Further, the EUR, even after witnessing not so good economics, strengthened against majority of its counterparts as the ECB President talked down the need to stretch QE while the GBP was a tad weaker against majority of its counterparts, except USD, as the BoE also joined hands with Fed to refrain from signaling an interest rate hike prospects. Moreover, gains in commodity markets, mainly triggered by the improvement in Gold and Crude prices, fueled the commodity currencies, namely, AUD, NZD and CAD.

Looking forward, inflation readings from US, UK, China, Europe and New-Zealand are likely to play a pivotal role in determining this week's forex moves while labor market details from UK and Australia, coupled with US Prelim UoM Consumer Sentiment, are some of the additional data points that could provide noticeable liquidity into the global financial markets.

Handful Of US Details To Help Forecasting The USD Trend

Even if the uncertainty relating to the Federal Reserve's much awaited interest rate hike keep pulling down the US Dollar, crucial events scheduled during the holiday shortened week, mainly the Inflation mark, could provide a better help to forecast near-term USD moves.

As can be noticed from the aforementioned chart, the monthly reading of US seasonally adjusted inflation recently plunged to the lowest levels last seen during January and the Fed is more worried about the global economic outlook that has been pessimistic off-late. The central bank, even after saying that the US economy is strong enough, would like to see its inflation inching up in order to signal the much awaited interest rate lift-off. However, global markets have already started believing that the Fed's interest hike is less likely to take place in 2015 and a weaker reading of inflation, further plunging into the negative territory to the -0.2% forecast versus -0.1% prior, during its Thursday's release, could provide an additional reason to the US Fed in delaying the interest rate hike announcement and make the way for further depreciation of US currency. Alternatively, an upbeat CPI reading could only provide a bit of pullback to the greenback as the inflation is still way too lower than the central bank's target rate.

In addition to the CPI, Wednesday's PPI and Retail Sales, Thursday's the Empire State Manufacturing Index and Philly Fed Manufacturing Index and the Preliminary reading of UoM Consumer Sentiment, scheduled for Friday release, are some other data points that could offer greater insights to determine greenback trend. Even if the consumer sentiment gauge is likely to surpass upwardly revised 87.2 prior to the 88.8 mark, and the manufacturing indices from Empire State and Philly Fed are also expected to cut down their previous declines of -14.7 and -6.0 to -7.3 and -1.8 respectively, the PPI may plunge negative for the first time since May, to -0.2% from 0.0% prior, and the Retail Sales bear the consensus of registering 0.2% constant growth. Moreover, the Core PPI can print downbeat reading to 0.1% against its 0.3% prior and Core Retail Sales are expected shrink by -0.1% mark as compared to its previous +0.1% growth. With majority of the US data points signaling weaker economic prospects, chances are higher that the speculations concerning delayed Fed rate hike get stronger and could continue pulling down the greenback towards another southward journey.

Euro Traders To Look For ZEW Readings And Final CPI

Although the ECB President seems afraid of confirming that the regional economy is in need of QE extension, negative reading of the EU Flash CPI and some of the weaker economics keep favoring that the Europe should be given another boost of monetary measures. However, Final reading of CPI, scheduled for Friday release, coupled with the ZEW Economic Sentiment indices for EU and Germany, scheduled for release on Tuesday, are some of readings that could help determine near-term Euro trades. As the economic sentiment is likely registering weaker readings, to the lowest since November 2014 to 30.1 versus 33.3 prior for EU and 6.8 from 12.1 previous mark for Germany, and the Final CPI is also expected to confirm its Flash -0.1% estimate, the ECB is likely getting a bit more of push to announce the QE extension, providing considerable EUR declines. However, a positive CPI and an improvement in economic sentiments may favor the Draghi's optimism and can help the regional currency extend its recent rise.

UK CPI And Labor Market Details Can Trigger GBP Advance

With the recent pessimism surrounding the BoE's monetary policy outlook, market players seem scaling back expectations concerning the interest rate hike by the Bank of England (BoE) and have started pulling out their GBP longs. However, monthly numbers of UK CPI and job details, scheduled for release on Tuesday and Wednesday respectively, are both the pillars to determine the central banker's monetary policy actions and a stronger reading could again favor the UK currency's up-move.

While the CPI is likely to remain stagnant at 0.0%, the Core CPI is expected to surpass prior 1.0% mark with 1.1% number. Moreover, the labor market details are more of the positive to help GBP rise as the Average Earnings bear the consensus of rallying by 3.1%, three month's high, against 2.9% prior while the Claimant Counts are also expected to plunge negative by -2.3K from +1.2K prior and the Unemployment rate may print 5.5% constant number. As labor market details signal an improvement and the Core CPI is also indicating an up-move, it becomes nearly safe to say that the global pessimism isn't hurting the UK economy and chances are higher that the BoE could think of providing much awaited interest rate hike signals, fueling the GBP to reverse its recent declines.

Chinese CPI, Australian Job Numbers And New-Zealand CPI From The Rest Of The Globe Details To Fuel Forex Volatility

Recent signals from Chinese authorities to ease some of its fiscal policy norms in a move to fuel the lingering economy, that is expected to register slower growth this year, has once again fueled concerns that the global commodity giants are in trouble. However, the monthly reading of Chinese CPI, scheduled for Wednesday, can shed some more lights on the need for further easing. The inflation measure is likely to test 1.8% mark compared to 2.0% prior while the PPI is expected to remain stagnant at -5.9% reading. Should the inflation numbers pose a deflation threat, recent advances of the commodity prices, and in-turn the commodity currencies' rise, are likely to get reversed.

Considering the RBA's strength to keep negating additional stimulus need, favoring AUD rally, positive readings from the Australian labor market details, scheduled for Thursday, can help the Aussie extend its recent advance. However, the forecasts concerning the details favor an alternative approach as the Employment Change are likely declining a bit from its 17.4K prior to 7.2K while Unemployment rate is expected to remain intact at 6.2%. Should these job numbers weakens, coupled with downbeat Chinese CPI, the AUD can liquidate some of its recent gains. Moreover, Friday's quarterly reading of New-Zealand CPI becomes important to forecast near-term NZD moves. The inflation reading is likely to soften a bit to 0.2% growth compared to its prior 0.4% rise and a weaker reading could rollback some the recent NZD advances.

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