Inflation and the USA

On Monday, I will be watching for any surprises in the ISM Manufacturing PMI numbers. The inflation situation in the US has gotten better, but it is still a bit too hot. Also, there have been signs that it could accelerate again. With this in mind, the markets have a better than half chance of a Fed rate cut of 25 basis points in December.

Because of this, all of these announcements this week will be important. I have noticed a pattern here: The first PMI number (manufacturing) will typically be more important than the services one that we get on Wednesday. This isn’t to say that the Wednesday number can’t surprise, but generally speaking, the number today will “set the tone” for the week. However, be aware that this is also Non-Farm Payrolls Week, so this will be in the back of trader’s minds as well.

Expectations and what I might do.

I will be watching the number to see what the initial reaction will be. The expected number is 47.7, which would still show retraction. The previous month was 46.5, below the expected 47.6 by the markets. In fact, this number has missed the expected number 4 of the last 5 months. If this trend continues, it could be very dollar negative.

If the number disappoints again, I will be watching the following markets: GBP/USD, EUR/USD, and AUD/USD. If they are all going higher, I will be looking to buy gold. The attached chart shows gold at the moment, and I believe that we are about to see dome inertia released. The trend has been up for some time, but recently it has been going sideways.

If the number comes out above 50, then the play is to look to buy US dollars, probably against any of those three currencies mentioned above. I would also point out that with all of the news coming out this week, this is probably a 1-2 day trade. Manage accordingly.

As a rule, I want to see a 30 or 60-minute candle close in favor of any of these setups. This is unless there is a huge miss, then it simply becomes something that “should happen.” That being said, the market will do whatever it wants. This is the reality of all things.

Cheers,
Chris