Markets brace for key US inflation data

US equity futures remained in a tight range as investors awaited a crucial US inflation report, seeking signals on the future path of interest rates.

S&P 500 futures edged down 0.1%, while European stocks found support from strong corporate earnings. Heineken NV saw a sharp 13% jump after reporting robust demand for its premium offerings, and ABN Amro Bank NV gained over 8% following better-than-expected net interest income. Meanwhile, an index tracking Asian markets moved higher.

Some economists predict that US inflation likely stayed persistent last month, reinforcing the Federal Reserve’s cautious stance on lowering borrowing costs. Fed Chair Jerome Powell reiterated in his Congressional testimony on Tuesday that the central bank sees no urgency in cutting rates, highlighting the economy’s resilience.

Treasury yields held steady after a sharp selloff across maturities on Tuesday, continuing their upward trend amid strong US economic data. At the same time, the S&P 500 has remained locked in its longest period of narrow trading since mid-December.

Markets are on edge ahead of today’s inflation release. Analysts at JPMorgan Chase & Co. suggest that if the January Consumer Price Index (CPI) rises 0.4% or more from the prior month, the S&P 500 could see a decline of up to 2%. Current forecasts anticipate a 0.3% month-on-month increase, while options markets indicate an expected move of just under 1% for the S&P 500. The inflation data will be released shortly before Powell’s second day of testimony before Congress.

DXY remains below 108.50

The US Dollar Index has once again failed to break above the resistance level of 108.50 over the past two days, resulting in a decline toward 107.85 earlier today. Today’s inflation data is expected to serve as a catalyst for the next market movement. Meanwhile, the time/price method continues to indicate that the bearish outlook remains intact, with the potential for a retest of 107.30, followed by 106.40 within the next two weeks. This bearish outlook would be invalidated if the index closes above 109.0 for a week.

Strengthening bullish outlook for EURUSD

The EURUSD pair has held above 1.03 since the start of the week, and technical indicators on the daily chart are gradually improving, suggesting that this upward trend may continue in the coming weeks. Today’s inflation data from the US will likely play a crucial role in this outlook. Currently, the time/price method indicates another move higher, targeting 1.04, followed by 1.05 in the near term. However, this bullish outlook would be invalidated if the Euro closes below 1.0250 for a week.

Gold price falls below $2900

After hitting a record high of $2942, gold prices have since retreated, reaching a low of $2880 at the time of this report. Based on the price/time method, it appears that this downward correction may continue for the next two weeks, with the next key support level identified at $2860. While gold is still considered the best hedge against a presidency like Trump’s, investors should be prepared for significant volatility and large price corrections.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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