Investors Await Central Banks And Inflation Data

On Thursday, the US data is forecast to show that both the headline and core CPI rates have continued to climb well above the Fed’s target of 2%. In our view, the fact that underlying inflationary pressures are rising as well raises questions as to whether the spike in headline inflation is due to transitory factors, as the Fed initially supported.

Now, with several policymakers arguing that they need to start discussing policy normalization at the upcoming gatherings, further acceleration in consumer prices may increase speculation for the Committee acting sooner than previously thought, and thereby result in a pullback in equities and other risk-linked assets. At the same, the US dollar and other safe havens may strengthen.

Now, flying to Canada, there, inflation accelerated in both headline and core terms as well. However, Friday’s weak employment report is likely to prevent BoC from reducing further their bond purchases on Wednesday.

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We believe that after doing that at the prior gathering, they can wait for now. In any case, an upbeat tone in the Bank’s statement, hinting that more tapering is in the works for the months to come, is likely to keep the Canadian dollar supported.

Returning to the Eurozone, things here are different. Although we saw headline inflation spiking notably higher, the core rate stayed subdued. This means that indeed, the rising headline inflationary pressures are due to transitory factors.

Having that in mind, and also that several ECB policymakers continue to support an extra-loose policy stance, we don’t expect this Bank to discuss QE tapering at all this week. Therefore, if this is the case, we will focus on the updated economic projections and hints as to whether the recovery is satisfying enough.

The technical picture of FTSE 100 shows that the index is still trading above a short-term tentative upside support line taken from the low of May 19. However, at the same time, the price remains below a short-term tentative downside resistance line taken from the high of May 10.

In order to consider the next short-term directional move, a break of one of the above-mentioned lines is required. Until then, we will take a neutral stance.

If, eventually, the index breaks the aforementioned downside line and makes a move above the 7123 barrier, marked by the current highest point of June, this will confirm a forthcoming higher high, possibly clearing the path towards higher areas.

The FTSE 100 could then drift to the 7139 barrier, marked by an intraday swing low of May 10, where the price might stall for a bit. That said, if buyers are still active, they could easily push the index towards the highest point of May, at 7167.

Alternatively, if the previously mentioned upside line breaks and the price falls below the 7038 hurdle, marked near the lows of June 4 and 7, that could bring more sellers into the game. The FTSE 100 might then be sent to the 7012 zone, marked by the low of June 3, which could halt the slide temporarily.

The price may even rebound somewhat, however, if it continues to trade below the above-mentioned upside line, another slide might be possible. If this time the FTSE 100 is able to bypass the 7012 area, this could open the door for a move to the 6988 level, marked by the low of May 28.