Inflation Data Will Drive Dollar Markets In Q1 2022

U.S. Jobs Report Misses Expectations, Focus Shifts to Inflation Data

by Bogdan Giulvezan

The first week of the year was poor for the US Dollar as the Non-Farm Payrolls report showed that only 199K new jobs were created during the previous month, as opposed to the expected 426K. This abysmal reading allowed the Euro to advance against the greenback Friday at the time of the release, and to take the pair to a high of 1.1365.

Monday morning the dollar recouped some of the losses and currently, the pair is trading at 1.1330 but it is still range-bound and with very low volatility. As shown by the Eurozone Flash CPI released Friday, inflation has risen to 5% (year over year), which may determine the ECB to make some monetary policy adjustments but until (or if) that happens, the Euro will remain under pressure.

The week ahead is filled with important data releases, as well as a couple of speeches, thus we may see some more action and possibly a breakout but of course, there are no guarantees; anyway, here are the things to look out for this week.

Key Events for the Week Ahead

Fed Chair Jerome Powell will testify Tuesday, January 11 at 3:00 pm GMT before the Senate Banking Committee on the topic of his renomination to Chairman of the Federal Reserve Board of Governors. During the first part of the testimony, he will read a prepared statement, which will be followed by unscripted questions asked by the Committee. This second part is the one that can generate the biggest volatility, so a bit of trading caution will be needed.

Wednesday at 1:30 pm GMT the U.S. Consumer Price Index and Core version of the same indicator come out, showing changes in the price that consumers pay for a basket of goods and services. These are both very important gauges of inflation but the Core version excludes food and energy (because these categories tend to be very volatile) and the FOMC usually pays more attention to it. The CPI is expected to show a 0.4% change and the Core CPI a 0.5% change; higher values usually boost the currency.

Friday at 1:30 pm GMT, ECB President Lagarde will deliver a speech at the Conference of Parliamentary Committees for Union Affairs, which could send some ripples across EUR pairs but it all depends on the President’s attitude and matters discussed. At the same time, the U.S. Retail Sales and Core Retail Sales come out, with the potential to generate strong moves. The former indicator is expected to show a 0.2% change, while the forecast for the latter is 0.0%. Higher numbers show that the economy is thriving, thus can lift the USD.

Chart Analysis – EUR/USD

The pair lacks momentum and is trading inside a tight range for more than a month but this is likely to change soon as a breakout is imminent. Although Friday’s impulse was bullish due to the disappointing NFP reading, it doesn’t look like the pair has enough oomph to move above the 50 days MA.

The price has already bounced twice at the moving average, which further supports the idea that there is not enough bullish pressure. On the other hand, the bears are not very active either, thus it’s likely to see a toned-down price action until some data comes out later in the week.