US CPI Up Next

Today’s US CPI release is drawing a great deal of attention in the run up to the September FOMC meeting. Market pricing has recently swung in favour of a larger .75% hike. However, USD has been trading lower over recent days as increased hawkishness from the ECB and hawkish expectations ahead of the BOE, have stolen the focus somewhat. However, today’s data holds the potential to put trader attention firmly back on USD.

On the back of a softer inflation reading in July, traders will be keen to see if CPI moderated further next month (supplying stronger evidence of inflation having peaked). If this is seen, USD will certainly weaken further near-term. The extent to the decline will be guided by the scale of any CPI undershoot seen. On the other hand, if CPI is seen bouncing back last month with a fresh spike, this will put the focus firmly back on Fed tightening expectations – especially given recent hawkish commentary, sending USD higher near term.

Technical Views

DXY

The move above the 109.02 prior 2022 highs was accompanied by strong bearish divergence in momentum studies, suggesting the rally was a blowout top. Price is now correcting sharply and is fast approaching a test of the bull channel lows. If price fails to hold this area as support, 104.81 is the next support level to note.