Following a record high in US CPI statistics, the US PPI will be closely monitored. The focus is on Jerome Powell’s speech to Congress. Keep an eye on the USD/JPY and USD/CAD values. Following yesterday’s huge beat in US CPI statistics, the focus has shifted back to inflation, but this time with a distinct twist. Despite consumer prices hitting their highest level since 2008, bond rates have been controlled and the US Dollar is failing to maintain Tuesday’s bullish momentum, indicating that investors are increasingly convinced about the transitory nature of rising prices. The US PPI data due out this afternoon will be an important gauge for this, as it is likely to show the first signs of a reduction in inflationary pressures that will eventually spread down the production line. And, in June, both China and the United Kingdom reported lower producer prices than expected, indicating that prices in the United States may stabilize in the coming weeks. I’m sure Jerome Powell will be watching the data closely this afternoon because he has a speech to give to Congress this evening, and a weaker-than-expected PPI reading would be perfect evidence for him to continue arguing that price pressures are transitory in nature and that once base effects are removed, the data is simply showing the natural course of an economic reversal.
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If, on the other hand, producer pricing pressures continue to rise, concerns about inflation will likely rise once again, supporting the US Dollar in the short term due to the greater possibility that the Federal Reserve will make monetary policy changes in the coming months. Daily USD/JPY Chart In recent sessions, USD/JPY movements have been restrained, indicating a small risk to the downside in the immediate term. The 100 and 50-day moving averages are providing critical support for a move higher, but the 20-day average is capping US Dollar gains in today’s session. Bullish momentum is also being stifled by an ascending trendline that is now functioning as resistance, therefore I’d want to see the pair move back above 110.67 to consolidate any remaining bullish momentum. If not, keep an eye out for support around the 110.0 mark. Daily USD/CAD Chart Over the last month, USD/CAD has gained a lot of traction, breaking out of the downward channel it had been mired in for the previous 15 months. The pair broke above 1.25 again yesterday due to USD strength, but a rise in oil prices has prolonged support for the commodity-linked loonie, halting the positive move in the pair. When the Bank of Canada meets this afternoon, they are expected to continue their tapering program, providing more support for the Canadian Dollar. Look for a fall to the ascending trendline support just below the 1.24 level around 1.2386. Bulls will most likely go for 1.26 on the upside. Learn more about the basics of the stock market here, or download one of our free trading guides. Market Analyst Daniela Sabin Hathorn contributed to this article. Daniela’s Twitter handle is @HathornSabin./n
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