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A big miss in the US PPI data has the dollar moving lower against the basket of world currencies. The caveat is that the move hit resistance on expectations of equally important CPI data on tap for Friday. CPI is expected in a range near 0.1%, if it comes in weaker than expected we may see strong continuations of today’s moves.  Regardless, with the next round of central bank meetings beginning next week forex markets are likely to remain within their longer-term ranges without a strong catalyst to move them.

Headline PPI came in at a dismal -0.1%, below the expected 0.2% and well below the previous month’s 0.4%. The decline is due primarily to declines in the service index, the goods index was unchanged. The core ex-food & energy figure came in at 0.1% but also below expectations. On a year over year basis headline inflation rose at a rate of 2.6% while core inflation rose by 2.3%, both above the FOMC’s target 2.0%. The data is weaker than expected but still strong on a year over year basis. While weakening the dollar near term it still supports the idea of policy tightening in the US.

The EUR/USD was moving higher even before the PPI data. This move was sparked by better than expected industrial production in the EU. Production increased by 1.0% from the previous month and up 3.2% year over year versus expectations for 0.8% and 3.0%. The pair created a long green candle moving up from the short term moving average and bullish at first glance. At second glance there is some indication of resistance just above 1.2040 and the indicators are not confirming today’s rally. The pair may drift up to the 1.2090 level in overnight trading, the CPI data tomorrow may send it higher.

EUR/USD graph

The dollar was able to hold its ground versus the yen but at a freshly set 6 weeks low. The low was set in response to a surprise decision from the BOJ to trim bond purchases and a knee-jerk reaction in my opinion. The long-term outlook remains the same; the BOJ isn’t about to start tightening and the FOMC is going to raise interest rates again.

Currently there is about a 70% chance of hike at the March meeting and those odds are likely to increase as we move into the winter manufacturing season. The pair is indicated lower with a target for support at 111.00. If the CPI should strengthen the pair a move to the moving average should be expected.

USD/JPY graph

The pound was able to gain versus the dollar after some weakness early in the session. The pair fell to test support at the up trending moving average and confirmed that support with a bounce. Today’s candle is a small green bodied candle with visible lower shadow, indicative of support.

pound was able to gain versus the dollar after some weakness early in the session

The indicators are showing weakness now, consistent with the test to support, but are bullish in the longer term and set up for a trend following entry. A move higher would be bullish but face resistance at 1.3600, a break above that would be bullish. The BOE meets next on February 8.

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NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future

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