All Eyes on CPI and FOMC Minutes

Prices in the US are expected to have moderated on the back of lower energy prices, with the market focused on the FOMC minutes as expectations for the next meeting are still in the air.

Inflation Coming Down, But Core Remains Sticky

The Atlanta Fed's estimate of economic activity in the US has been sliding for nearly a month, expecting 1.5% annualised growth in Q1, with slowing economic activity helping normalise inflation. The current expectation is that headline CPI will come in at 5.3% compared to the 6.0% reported in February, thanks to lower March energy prices. However, OPEC's announcement of production cuts has reversed crude prices recently, which might impact the headline.

The Fed is likely to be much more focused on the core rate, which is expected to remain unchanged at 5.5%, but come slightly down to 0.4% from 0.5% monthly. Slowing demand has helped alleviate supply chain issues, and retailers have seen rising inventories, which have recently brought the core rate down. But the stickiness in the key rate for the Fed could keep up the pressure for another rate hike, as the tightness of the jobs market sustains demand and prices.

FOMC Minutes and the Jobs Market

More than two-thirds of traders now expect a quarter of a point hike by the Fed, a more substantial consensus than a week ago when less than six-tenths supported that option. The better-than-expected services sector and the latest job numbers impacted that outlook. Investors have been increasingly focused on the Fed's take on the jobs market as slowing inflation brings the second mandate back into focus.

Traders will also be keen on any comments relating to the banking crisis and how that influenced the Fed's thinking concerning the last interest rate decision. The market still disagrees with the Fed in the longer term, expecting rate cuts by the end of the year, while Fed officials insist rates will remain high through December.

EUR/USD Points to Short-term Upside

A wedge pattern may be in the making despite the recent correction in EUR/USD. If the short-term losses extend no more than the low of $1.0760 (less than the length of the initial correction from $1.0930 to $1.0713), the likelihood of reclaiming the top of $1.1033 will increase when $1.0973 gives way; thus, supporting the case of reaching fresh multimonth highs towards $1.11. Otherwise, the structure might turn into a triangle or other correction pattern, opening the door to $1.0532.

Key Takeaways

The US is expected to release the latest CPI figures and minutes from the most recent FOMC meeting. CPI inflation is expected to have moderated on lower energy prices, with headline CPI coming in at 5.3% but the core rate remaining sticky at 0.4%. Market attention will be on the FOMC minutes for hints of the next policy move, though, with traders expecting a quarter-point hike amidst the hotness of the jobs market. EUR/USD points to a short-term upside, with a wedge pattern being completed if the low of $1.0760 is not breached.