CPI Anticipation: Will USD Find Strength or Continue to Stall?

As we await the CPI release, the USD remains in a state of uncertainty, showing no clear signs of strength just yet. With the CPI data set to be released today, market movements could take a decisive turn. Here's what to watch for and how it could impact major currency pairs.

Yesterday, we mapped 3 scenarios that could potentially unfold. As of now, we are still not seeing enough strength for USD to propel to the upside.

Scenario #2 played out yesterday. Price breaks out of the range but fakes out and goes down further after retesting the previous support turned resistance. Check out: Forex Market Insights: USD, AUDUSD & NZDUSD Analysis.

As of now, its not yet clear where would be going as we are still waiting for the main event this week, CPI.

Forecasted core inflation rate, goods and services, has increased on a monthly basis by 0.1%.

Overall inflation is forecasted to be lower by 0.1% from a previous reading 0.4%.

Last week, we had a lower reading of the ISM Services PMI, lower than the previous and forecasted numbers.

Lower ISM Services PMI → Inflationary Pressures Decrease

• When the PMI falls (below 50), it suggests a slowdown in services activity.
• Businesses may cut prices to attract customers.
• A weaker services sector can lead to lower wage growth and less demand-driven inflation.

If ISM Services PMI declines, it may signal slowing inflation, giving the Fed room to cut rates or pause rate hikes.

What does this mean for the incoming CPI?

The ISM Services PMI for January 2025 registered at 52.8%, indicating continued expansion in the services sector, though at a slower pace compared to December's 54%. Notably, the Prices Index, which reflects the prices paid for services inputs, decreased to 60.4% from December's 64.4%, suggesting a deceleration in price increases within the sector.

Given that the services sector constitutes a significant portion of the U.S. economy, this moderation in price growth could influence the Consumer Price Index (CPI), a key measure of inflation. The CPI for January 2025 is scheduled for release today, February 12, 2025.

Economists project a 2.9% year-over-year increase in the CPI for January, consistent with December's rise. The slowdown in the ISM Services Prices Index may contribute to a stabilization of inflation rates, potentially aligning with these expectations.

In summary, the recent ISM Services PMI data, particularly the easing of price pressures, suggests that the upcoming CPI report may reflect stable inflation trends, aligning with current market forecasts.

How would this impact the foreign pairs?

Basically, if CPI would be stable, there would be a small room for the FED to consider rate hikes in the coming months. Rate pause to rate cuts would mean a depreciation of the USD and making other foreign currencies attractive.

AUD

We strong closed yesterday and we still haven’t seen signs of weaknesses. Unless, the CPI print comes out positive in favor of the USD.

We could potentially draw to 0.63305 level and from there, we’d like to see some reaction as this is a good level for a liquidity pairing.

Scenarios that we could anticipate:

1. We breakout of the range and it will be sustained.
2. We tap into that resistance and price doesn’t get sustained and moves down.

NZD

Like the AUD, we have not seen any significant bearish moves in favor of the Dollar. Dollar right now is still stalling as it awaits the CPI later today.

If USD won’t make a move yet, still on a bearish stance, we’d like this highs to be taken out until the 0.57232 level.

AUDNZD

AUD is still strong over NZD after a strong close yesterday. AUD would be easier to push to the upside vs NZD as AUD is increasing in strength.

EUR

EUR closed strong yesterday and filled the imbalance.

GBP

Same with GBP and we are looking for price to hit the next high, 1.25497.

EURGBP

Imbalance is being respected with EURGBP. If this gap will not get invalidated by closing above, we could expect strength for GBP.

Trade accordingly in conjunction with the USD’s strength.

CAD

We are currently testing the lows of CAD. Though on the previous weeks, the Loonie has been going up but in a slow pace, its not enough for it to continue.

We filled the imbalance and we might continue to the downside.

Also, adding to the strength of CAD is the increasing crude prices, particularly, the West Texas Intermediate (WTI) crude oil and is currently trading at $76.

CHF

The pair is exhibiting a neutral short-term trend, while maintaining bullish momentum in both the mid-term and long-term perspectives.

U.S. Economic Indicators: Recent U.S. economic data has shown resilience, with positive developments in employment and manufacturing sectors, bolstering the U.S. dollar.

Swiss Economic Indicators: Switzerland's economic data remains stable, with moderate growth and low inflation, contributing to the Swiss franc's status as a safe-haven currency.

The Swissie is currently navigating a consolidation phase, with key resistance at 0.9169. A decisive break above this level could pave the way toward 0.9200 and beyond. Conversely, support is observed around 0.9014; a decline below this level may signal a potential shift in momentum.

We want to see a significant development this week with the Majors after the CPI print goes out.

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