Trading Insights: Don’t ignore today’s US inflation data

Skilling Writers Team
2023-03-14
- News
- Trading

Market Talk

High volatility across financial markets on deck

The markets are expecting the US Fed to hike interest rates 0.25% next week, however the door is open for a 0.5% rate hike if today’s US inflation data comes in hotter than expected. At the same time, some reports across the financial media are even saying that the US Fed may even cut interest rates by 0.25% next week.

Current volatility drivers:

Uncertainty around next week's Fed interest rate decision
Contagion risk still being accessed around the collapse of US SVB

Bottom line: Financial market volatility is expected to shift higher over the very short term (1-13 days)

The VIX Index - a pure play volatility product

The VIX is an important tool to measure market risk and investor attitudes about risk.

The VIX is a tradable index that measures investor expectations on the relative strength of price changes for the US S&P 500 Index volatility.

When investors feel that stock markets are becoming too volatile or risky in the near term, the VIX index tends to move higher
When investors feel that stock indices should move higher, the VIX index tends to move lower This inverse relationship allows:
Hedges to who are currently either long or short the S&P 500 Index to “hedge” stock market exposure
Speculators who are seeking to capture pure market volatility

VIX Volatility Index (CFD) weekly chart

Technical commentary: The VIX index current price is above its 10 week moving average (bullish); the 4 week rate of change is above its zero line (bullish), the 13 week rate of change is above its zero line (bullish), short term resistance at $27.11 and short term support at $22.90.

Conclusion: Long positions could be technically supported provided price can remain above the $22.90 support level found near the 38.2% retracement from the 13 week lows for potential target (1) $27.11, prospective targets (2) $29.84 and $32.2 as extensions.

Upcoming Key Economic Events

Today March 14, Tuesday

US core inflation is expected to slow slightly month on month from 0.5% to 0.4%
US inflation data may move higher as it's expected that used car prices could see an increase
Housing rents are expected to slow
Energy prices are expected to slow
Core goods are expected to remain elevated

Today’s US CPI (inflation) outcome could be the catalyst event that will either signal for the FED to continue the rate hiking cycle or slow it down.

The main market risk factor over the next week is if the Fed makes a surprise move and cuts interest rate by 0.25%.

Time: GMT+0	Country/Region	Economic Indicator	Previous	Forecast	Actual	Units
7:00:00 AM	United Kingdom	ILO Unemployment Rate	3.7	3.8	3.7	%
7:00:00 AM	United Kingdom	Unemployment Claimant Count	-12.9	-	-11.2	-
7:00:00 AM	United Kingdom	Avg Earnings (ex-bonus) 3m3m yy	6.7	6.6	6.5	%
8:00:00 AM	Spain	HICP (f) m/m (inflation)	1	1	-	%
12:30:00 PM	US	CPI m/m (inflation)	0.5	0.4	-	%
12:30:00 PM	US	CPI Ex Food and Energy m/m	0.4	0.4	-	%
12:30:00 PM	US	CPI y/y (inflation)	6.4	6	-	%
12:30:00 PM	US	CPI Ex Food and Energy y/y	5.6	5.5	-	%

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Date	Events
Wednesday, March 15	- US producer price inflation - US retail sales
Thursday, March 16	European Central bank (ECB) interest rate decision
Friday, March 17	US consumer sentiment

Cross asset bullet points:

Gold strong upside move over the last 24 hours. The resistance at $1,900 has now been cleared (bullish) opening further prospects for an extension move higher towards the $1,930s in the very short term (5-13 days). Downside risk for longs seen below the $1,844 support.

EUR/USD room for further upside remains on the table, the support at 1.0525 seems to have set a “floor” for current price, keeping alive the potential for a test of the 1.0823 area in the very short term (5-13 days).