Today sees the all-important inflation release out of the US, with markets expecting to see a substantial decline from 4% to 3.1% in headline CPI. Such a move could provide a significant boost to market sentiment, driving further equity upside and dollar weakness. However, it is worthwhile noting the impact 'base effects' are going to play in the months ahead. The reason that we are expecting to see such a substantial decline in CPI this time around is related to the fact that we are replacing a whopping 1.3% monthly CPI figure from this time last year. Thus, anything below 1.3% for the month will result in a decline in the year-on-year reading (0.3% MoM expected). However, just as we benefit this month, those base effects benefits essentially end here, with the forthcoming two months having to replace a 0% July 2022 figure, and 0.1% from last August. With that in mind, inflation is going to likely rise over the following two-months, dampening optimism for anyone bothered to consider the real reason for todays notable rise.
Looking at the Dow chart, we are approaching a key zone of resistance, with price having previously struggled to push above the 34257-34712 zone in the past. With that in mind, short-term gains associated with a potential sharp decline in headline CPI could run into trouble within this zone. That is not to say that we are certainly going to reverse here, as traders will note the recent bullish phase in play. Nonetheless, it is worthwhile noting the potential for any CPI boost to be sold into before long, with a rise through 34712 required to finally break free from a zone that has limited upside in this index over the past seven-months.
Looking at the Dow chart, we are approaching a key zone of resistance, with price having previously struggled to push above the 34257-34712 zone in the past. With that in mind, short-term gains associated with a potential sharp decline in headline CPI could run into trouble within this zone. That is not to say that we are certainly going to reverse here, as traders will note the recent bullish phase in play. Nonetheless, it is worthwhile noting the potential for any CPI boost to be sold into before long, with a rise through 34712 required to finally break free from a zone that has limited upside in this index over the past seven-months.
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.