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All Eyes on the Inflation Report

Investors remain in an upbeat mood going into tomorrow’s US inflation report, buoyed still by the December jobs report and the prospect of the economy being less squeezed by interest rates.

Fed Chair Jerome Powell may have refrained from commenting on the monetary policy outlook on Tuesday but the chances are, he wouldn’t have said anything investors would have liked even if he had addressed it. It’s been clear from other commentaries that policymakers are sticking to the hawkish script.

Another good inflation number tomorrow could change that as the trend has already been very encouraging and the jobs data that appeared to throw a spanner in the works last month has since been revised out. From an investor perspective, it would take something pretty terrible tomorrow – the inverse of what we were treated to on Friday – to really rock the boat.

Buoyed by economic optimism

That optimism appears to be feeding through to the oil market, with Brent and WTI both up more than 2% on the day. It will be interesting to see if they can hold onto those gains considering how they’ve failed to do so over the last four days. Another failure to do so would make this recovery rally look very weak.

Perhaps that will also hang on the inflation data tomorrow, with another softer reading paving the way for fewer hikes and even cuts later in the year. That would be supportive of the economy and therefore demand, potentially boosting oil prices.

$2,000 in sight?

Gold looks to have entered into a holding pattern ahead of the inflation data after rallying strongly once more in the aftermath of the jobs report. The yellow metal has started the year really strongly, buoyed by lower yields and favourable data, and the CPI numbers tomorrow could be supportive on both of these fronts.

There is significant resistance above at the moment, between $1,880 and $1,920 but if it can overcome this on the back of the CPI data, it could gather further momentum with $2,000 then not far away. An underwhelming report could reinforce that resistance and even trigger a correction.

Building confidence

Bitcoin is missing out on today’s risk rally but traders will be relieved by how the last couple of days have gone. It’s back above $17,000 and suddenly the mid-December peak doesn’t look too far away. Friendly newsflow and a solid CPI number tomorrow could help it gain some momentum from here but I remain sceptical about how much upside can be achieved in an otherwise hostile environment.

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