CPI Preview -- Technicals won't Help the DXY |
Updated
The major show of the day will be the latest US CPI data, which is predicted to jump 0.4 percentage point to 5.8 percent, with the core number rising 0.3 percentage point to 4.3 percent. As a result, this would be the sixth month in a row that inflation has above 5%, with the core reading at 4% or higher for the fifth month in a row.
Expected CPI of 5.8 percent (formerly 5.4 percent), with a range of 5.3 percent to 6 percent. Core CPI is expected to be 4.3 percent (previously 4 percent), with a range of 4 percent to 5 percent. However, with inflation seeming to be more persistent than central banks had anticipated, the justification for transitory inflation is eroding by the month, and today's publication may see a more conventional response, especially now that the Federal Reserve has suggested that tapering would be flexible. In other words, more (lower) than projected inflation causes the dollar to appreciate. Despite the fact that the US CPI is a significant risk event, FX options imply otherwise, as implied volatility remains low. The breakeven point for the Euro straddle is 36 pips (indicating EUR/USD is likely to move 36 pips in either direction). There are also large option expiries around 1.1550-55 (1.2 billion), 1.1565-75 (2.1 billion), and 1.1600 (1.5 billion) that might help to keep price movement in check. Unless, of course, there is a major difference.
Expected CPI of 5.8 percent (formerly 5.4 percent), with a range of 5.3 percent to 6 percent. Core CPI is expected to be 4.3 percent (previously 4 percent), with a range of 4 percent to 5 percent. However, with inflation seeming to be more persistent than central banks had anticipated, the justification for transitory inflation is eroding by the month, and today's publication may see a more conventional response, especially now that the Federal Reserve has suggested that tapering would be flexible. In other words, more (lower) than projected inflation causes the dollar to appreciate. Despite the fact that the US CPI is a significant risk event, FX options imply otherwise, as implied volatility remains low. The breakeven point for the Euro straddle is 36 pips (indicating EUR/USD is likely to move 36 pips in either direction). There are also large option expiries around 1.1550-55 (1.2 billion), 1.1565-75 (2.1 billion), and 1.1600 (1.5 billion) that might help to keep price movement in check. Unless, of course, there is a major difference.
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