Today, we had some US inflation, jobless claims, and durable goods data. We did see that the data set helped the USD in the USD/CAD (US and Canadian Data Reinforced the Triangle Support). The main focus should be on the inflation data, which showed a disappointing headline reading of -0.7%, which was less than the -0.4% reading in December, but right around the forecast which called for a reading around -0.6%. The core reading did edge up to 0.2% vs. the 0.1% forecast and the 0.0% December print.
We also saw the USD strength in the EUR/USD as well, as the pair broke below a technical support around 1.1270.
Now, while the 4H chart is showing a bearish continuation breakout, today’s inflation data is not going to be the driver. The fundamental driver remains the divergence between the ECB and the Fed – While the ECB implements QE, the Fed is gearing up for a rate hike this year.
From a technical stand point, the breakout is more of a volatility breakout than a bearish breakout. The market is waking up and so far it is to the downside. However, we are unlikely to see a break below 1.11 unless tomorrow’s US GDP allows it.
Anticipating the US Preliminary GDP data for Q4:
(US GDP q/q; source: forexfactory.com)
After a reading of 3.9% in Q3 of 2014, the advanced GDP estimate of Q4 reading came in at 2.6%. Tomorrow, the second or “preliminary” estimate is expected to show a downward revision to 2.1%. This is already disappointing and may have contributed to the USD’s weakness of late. A reading of 2.0% or lower might continue to resist USD-strength, but if the reading is close to 2.6% or higher, we should anticipate USD-strength especially against the euro, which is weak across the board.
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