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Investors eye US inflation report

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By Craig Erlam  

We saw a slightly softer trading session on Tuesday as investors eye crucial inflation data on Wednesday.

We’ve finally reached the point at which the Federal Reserve may be at the end of its tightening cycle and we can start to look forward to when it can feasibly begin to ease policy in order to offset any shock to the economy.

But in order for either of these to occur, we need to see evidence in the data that the Fed is on a path to 2%.

The FOMC will not hesitate to raise rates one more time if the data doesn’t deliver between now and June 14, regardless of the signals and small steps in the right direction in the labour market.

There should be more than enough signals in that time to warrant a pause, but after the jobs report on Friday, it wouldn’t hurt to avoid a nasty surprise in the CPI. Or the odds of a hike next month may increase significantly from the 8% at present.

Oil struggling to recover

Oil traders remain deeply concerned about the turbulence in the US regional banks and what the consequences could be for the US economy, alongside the ripple effects elsewhere.

Twice now we’ve seen the price plunge on the back of bank failures and so far, they haven’t had the helping hand of OPEC+ to repair the damage.

For the next month, at least, the bullish case for oil may come from fears subsiding around US banks, but that may be a lot to ask considering how quickly the collapse of First Republic eventually unfolded after earlier turmoil.

Others could easily follow. Until then, just getting back into the December-to-March range could be an achievement.

Gold edges higher

Gold trading above $2,000 and a little higher on Tuesday, but it is still some way shy of record highs, a level bulls may have an eye on if we see a softer CPI inflation report on Wednesday.

The yellow metal has been buoyed by a drastic repricing of US interest rate expectations since March and over the next couple of months, we’ll see just how fair that repricing has been.

A softer reading on Friday will be a big step in the right direction following a disappointing jobs report on the earnings side. A hotter report could cause another wobble and see gold’s run at record territory paused.

The rally is already running on fumes and a hot report could trigger a corrective move in the short-term.

Crypto correction on the cards?

Bitcoin has been struggling at $30,000 in recent days and another heavy decline could set up an interesting test around $27,000, an area that has provided reliable support since late March.

A break at this level could signal a correction of the incredible 2023 rally is on the cards, with $25,000 being the next major potential support level below.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.