WEDNESDAY ECONOMIC DATA PREVIEW

“Here we go again”

Wow, okay so it has been a busy week with all the economic data releases, and Wednesday will be no different.  Traders will be licking their chops ahead of the United States data, with

• CPI and retail sales out at 14:30
• Fed interest rate decision at 20:00
• Janet Yellen’s presser 20:30

These events are not to be missed, and I would recommend putting an alarm reminder on your phone.

Fed decisions are always a big deal, but this one takes on added significance with the market trying to figure out if the Fed will once again let down forward guidance and scale back calls for additional rate hikes this year, or if the Fed will keep with its guidance

America is looking for a softer dollar in order to make their exports more competitive, while the Fed is looking to taper monetary stimulus through increasing interest rates, which would result in a firmer dollar price. 

Looking at the March FOMC meeting projections: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20170315.htm

Inflation CPI at 14:30

The Fed expects both the headline and core readings for the PCE price index to print a 1.9% year-on-year increase by the end of the year. Unfortunately, both the headline and core readings deteriorated for the second consecutive month, with the core reading rising at the slowest annual pace in 16 months.

The jobless rate continues to improve, and while the hourly earnings rate has increased – it is decelerating. This indicates that the market is nearing an employment peak and would dampen further inflation.

Overall, the prospects for faster U.S. economic growth in Q2 look optimistic. The signs that the economy is approaching full employment

Inflation is a bit problematic, though, since the Fed’s expected pick up in wage growth hasn’t materialized. As for the labour market, it’s presenting a mixed picture, although some Fed officials would probably interpret the falling participation rate and reject weakness in jobs growth as signs that the economy is approaching full employment.

What you can do about it

With core retails sales also scheduled at the same time, it is important to pay attention to both releases. 

Higher inflation (beating estimates of 2.0%) should boost chances that the Fed hike rates in June – this would be beneficial for the USD against most currencies.

• If the core inflation increase, the idea is to go long USD
• If the core inflation decreases, the idea is to short USD