FX.co ★ Market hopes for the easing of inflationary pressures in the US

On Tuesday, stock markets received support amid the absence of new frightening news about the spread of an Indian strain more contagious than the Wuhan COVID-19, and reports that the Senate passed a bipartisan infrastructure bill of $ 1 trillion.

This latest news showed investors that the US government will continue to invest huge amounts of money in the national economy, which will definitely support the local economy and the shares of companies involved in this process. The economic growth will lead to an increase in the value of the shares of companies. This was actually the reason for the increase in the DOW industrial index and the S&P500, as an index of a wide market in which a large number of such companies are represented.

All markets' attention today will shift to the publication of data on America's consumer inflation. According to the forecast, inflationary pressure is expected to fall both in the general indicators of consumer price indices – from 0.9% to 0.5% in monthly terms and from 5.4% to 5.3% in annual terms, and in the basic values of this important macroeconomic indicator. It is assumed that the growth rate of the basic consumer price index in July will decrease to 0.4% from the June value of 0.9%. It is also expected to decline from 4.5% to 4.3% y/y.

How will the market react to a more noticeable decline in inflation or, conversely, to its likely growth?

We believe that a slightly higher drop in inflationary pressure will convince investors that the likelihood of a change in the Fed's monetary rate under the pressure of high inflation will noticeably decline. In view of this, companies' shares and commodity assets will receive demand. On the contrary, the US dollar will be under pressure. This may lead to a rally in the stock markets before the end of this week.

Here's another scenario for the development of events. An increase in inflation will lead to an increase in fears of an earlier change in the course of monetary policy with a corresponding local drop in demand for stocks, commodities, and commodity assets, which will also lead to a limited attempt of the dollar exchange rate on the currency market.

We will already find out how events will develop after the data is released at 12.30 Universal time.

Forecast of the day:

The USD/CAD pair may further decline and implement the "rising flag" trend continuation pattern if the US inflation data, as well as the US oil and petroleum product inventories, decrease. In this case, the pair may fall first to the level of 1.2485, and then to 1.2435.

The price of WTI crude oil reversed up amid the publication of data on US oil and petroleum product reserves from the American Petroleum Institute. The upward movement will intensify if data on oil reserves from the Ministry of Energy, as well as consumer inflation figures, show a decline. In this case, we expect the price to rise after breaking the level of 68.90 to 70.44.