Each inflation report feels like a game of tug-of-war, and the latest CPI data is no exception.
The latest U.S. Consumer Price Index (CPI) data reveals that inflation edged up by 2.4% year-over-year in September, narrowly surpassing forecasts but still reflecting a steady descent from its mid-2022 peak of 9.1%.
While the headline figure provides some optimism for market participants, core inflation—excluding food and energy—ticked higher to 3.3% from 3.2% in August, with persistent shelter costs driving this stubborn trend.
Amid signs of easing pipeline pressures, the Producer Price Index (PPI) clocked in at just 1.8% year-over-year, suggesting inflation pressures from wholesalers remain subdued. This dynamic raises hopes among traders that the Federal Reserve may be nearing the end of its inflation-targeting journey.
Forecasts from analysts from Goldman Sachs, including a projection that the Personal Consumption Expenditures (PCE) price index could stabilise around 2.04% over the next 12 months, align with market expectations that inflation is gradually but unevenly retreating.
Although shelter costs remain sticky, Fed Chair Jerome Powell has indicated they are expected to ease in the months ahead. Traders should keep a watchful eye here; shelter inflation has been one of the more resilient forces in recent data.
Market participants would be wise to treat this optimism with caution, as lingering services inflation could yet complicate the Fed’s path towards its 2% target.
A cooling inflation environment may justify additional monetary easing, and markets have already priced in a high probability of successive quarter-point rate cuts in November and December. The CME FedWatch Tool now suggests an 86.7% chance that a 0.25% rate cut will materialise in December, following a similar adjustment next month.
The Fed’s approach will likely focus on threading the needle between reducing inflation without unsettling the still-resilient labour market. After adding 254,000 jobs in September and nudging unemployment to 4.1%, the economy shows no signs of an imminent labour market correction, but the Fed will tread carefully to avoid reigniting inflation with overly aggressive cuts.
Atlanta Fed President Raphael Bostic and Vice Chair Philip Jefferson have both hinted at gradual easing to avoid destabilising the fragile economic balance. Future rate decisions will likely emphasise a slower pace, reflecting the need to avoid fuelling excessive demand while inflation continues to moderate.
Market participants trading U.S. dollar pairs, such as EURUSD or USDJPY, may want to monitor rate announcements closely, as these will shape currency movements in the coming weeks.
The broader focus is now shifting toward balancing inflation control with labour market stability. Rate cuts are likely to boost economic expansion in the near term, but the Fed remains alert to employment risks that could emerge from overly cautious or premature policy adjustments.
How have the markets reacted to this? Looking at the charts, we see that the U.S. Dollar Index (USDX) has held firm above 102.40, dismissing earlier bearish prospects.
The next step for traders will be to monitor consolidation, which could either occur around current levels or following a break above 103.05. Should price dip toward 101.70, it will be crucial to look for bullish patterns that could confirm upward momentum.
EURUSD is maintaining a downward bias after consolidating near 1.0940. With the euro under pressure, the pair could stage an upward rebound from current levels. However, traders will remain on guard, ready to act if EURUSD dips toward 1.0895 or lower, awaiting signs of a bullish reversal before committing to long positions.
USDJPY remains on an upward path, with traders closely eyeing the 150.50 area for bearish setups. Should the pair consolidate at this level without a pullback, attention will shift toward the 152.90 area, where further bearish signals might emerge, offering short-selling opportunities.
AUDUSD has bounced from the 0.6710 region, presenting traders with the task of monitoring price action around 0.6780. A break or consolidation here could lead the pair toward the 0.6840 mark.
Alternatively, any retreat to 0.6680 or 0.6640 could prompt bullish setups, offering potential re-entry points for buyers.
NZDUSD has experienced a wave of profit-taking following the Reserve Bank of New Zealand’s 50 basis-point rate cut, with price dipping to just below the 0.6080 target zone. Traders are now turning their attention to the 0.6160 and 0.6200 levels, where further buying interest may emerge. If the pair weakens further, the 0.6000 level will become a critical area to seek bullish setups.
Crude oil has shown resilience, trading near the $72.05 mark before pushing higher. The $78.78 level is now within reach, and if breached, price could extend toward $81.60. Traders remain attentive to geopolitical developments in the Middle East, understanding that conflict escalation could further support oil prices. Conversely, a ceasefire would likely pressure prices downward, limiting upside momentum.
Gold continues to build on gains from the 2590 zone, with traders eyeing the 2760 area for the next test of resistance. As gold trends higher, its safe-haven appeal remains intact amid inflation concerns and geopolitical risks.
The S&P 500 has carved out a new high and now has its sights set on the 5900 level. Traders will be watching for consolidation patterns along the way, looking for signs that the rally will extend or pause at key levels.
On Tuesday, all eyes turn to Canada as the Consumer Price Index (CPI) data for September is due. The forecast calls for a -0.2% month-over-month reading, matching the prior figure. This sets the stage for the USD/CAD to move within a consolidation phase early in the week.
If the print aligns with expectations, traders may see the pair continue its recent downward trajectory, but any surprise in the data could spark volatility. Lower-than-expected CPI could reinforce expectations of policy easing by the Bank of Canada, putting additional pressure on the loonie.
Wednesday shifts attention to the New Zealand dollar, with the quarterly CPI expected to come in at 1.9%, a dip from the previous 2.2%. If this forecast holds, it signals cooling inflation, which could weigh on NZDUSD.
Traders tracking the kiwi will be closely watching if price action aligns with this softer inflation narrative, especially as NZDUSD is already battling downward momentum.
Thursday delivers a multi-currency focus, beginning with Australia’s unemployment rate. The market anticipates a steady reading of 4.2%, reflecting stable employment conditions.
In Europe, the ECB’s refinancing rate announcement takes centre stage, with expectations leaning toward a 25-basis point cut, bringing the rate to 3.4% from 3.65%, at a 97% probability. Traders will be dissecting the ECB’s statement for clues on future monetary policy, as EUR/USD could encounter increased volatility around this decision.
The U.S. retail sales report for September will round out the day, with a forecast of 0.3% month-over-month growth, compared to the previous 0.1%. As usual, a stronger-than-expected result would bolster the U.S. dollar, potentially driving pairs such as EUR/USD and GBP/USD lower.
On Friday, market focus shifts to the UK, with retail sales data expected to show a contraction of -0.3% month-over-month, following a 1.0% increase previously. A negative reading would suggest softer consumer spending, likely putting downward pressure on the pound.
As GBPUSD has already faced selling pressure this month, traders will monitor this data closely for any indications of further weakening.
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