This week’s U.S. inflation data could generate more uncertainty for investors. Weaker-than-expected consumer inflation data on Tuesday and producer inflation data on Wednesday could give stocks a boost while putting further pressure on the struggling U.S. Dollar.
The Dollar/Yen posted a gain on Monday as investors kept an eye on a suspected cover-up of a cronyism scandal involving Japanese Prime Minister Shinzo Abe and his close ally, Finance Minister Taro Aso.
The USD/JPY settled on Monday at 106.407, down 0.396 or -0.37%.
According to reports, the Ministry of Finance admitted on Monday it altered documents related to a discounted sale of state-owned land to a school operator with ties to Abe’s wife.
Investors were also reacting to a weaker U.S. Dollar, lower Treasury yields and Tuesday’s U.S. consumer inflation report.
The USD/JPY was pressured on Monday by fears of lower inflation. On Friday, the dollar strengthened in reaction to stronger-than-expected non-payrolls data, but the headline number was not enough to attract buyers on Monday. Instead, reality set in as investors focused on persistently low average hourly wages that will likely constrain the U.S. Federal Reserve from raising interest rates more than three times this year.
The U.S. Non-Farm Payrolls report showed that average hourly earnings inched up four cents, or 0.1 percent, to $26.75 in February, a slowdown from the 0.3 percent rise in January. That lowered the year-on-year increase in average hourly earnings to 2.6 percent from 2.8 percent in January.
To get the dollar moving higher and to encourage the Fed to raise rates more aggressively, wage growth would need to more up to around three percent.
The developing political scandal is raising doubts about Abe’s ability to continue to pursue his economic policies, including monetary easing. However, this story is likely to take a backseat to the U.S. inflation report.
On Tuesday, investors will get the opportunity to react to the latest U.S. data on consumer inflation. It is expected to come in at 0.2%, down from the previously reported 0.5%. Core CPI is also expected to rise by 0.2%, down from the previously reported 0.3%.
This week’s U.S. inflation data could generate more uncertainty for investors. Weaker-than-expected consumer inflation data on Tuesday and producer inflation data on Wednesday could give stocks a boost while putting further pressure on the struggling U.S. Dollar.
Investors also remain cautious on the outlook for the U.S. Dollar due to concerns over U.S. trade protectionism after President Donald Trump imposed tariffs on steel and aluminum imports, except those from Mexico, Canada and Australia. Most of the tension is coming from investors who have seen a negative impact on the dollar from previous tariffs.
Look for the downside pressure to continue if the U.S. CPI report meets or comes in lower than the forecast. We could see a short-covering rally if the inflation data is higher than expected, however, it’s going to take a huge number to trigger a breakout to the upside.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.