US CPI Inflation Preview - what you need to know

With a vacuum of central bank meetings until December, the market will have a higher beta towards key economic data such as tomorrow’s US CPI Inflation data. This could see a repricing in rates markets as they try to test the limits of central banks, especially the Fed, whose pushback against rates pricing was non-existent. The expectation is for headline inflation to print at 5.8% YoY and core at 4.3% YoY. I’ll be paying particular attention to the shelter and housing figures as these are what make inflation stickier and fuel the fire of non-transitory inflationary worries. I think the greenback’s momentum is strong enough to shrug off a slight disappointment, but galvanize bulls with an upside surprise.

What assets are in the crosshairs tomorrow? The dollar of course, yield sensitive instruments such as USDJPY and gold.

Dollar Index (USD):

The dollar was a touch weaker on news that uber dove Lael Brainard could replace Powell, betting markets aren’t too fazed – seeing Powell’s re-election as a high probability outcome. However, at the time of writing the dollar is flat, retracing that mild weakness.

(Source: TradingView - Past performance is not indicative of future performance.)

The dollar got knocked back as it hit the 94.5 overhead resistance. Price is now trying to hold the 93.8 support and the 21-day EMA. The RSI is back below the 55 range resistance level. Targets wise, to the upside I'd look towards 94.5. On the downside look towards the 93.8 support in conjunction with the 21-day EMA and below there the 50-day SMA.

USDJPY:

Higher inflation, higher nominal yields, higher USDJPY? That’s how it should go, but we know markets don’t always go to plan. USDJPY has sliced through the 113.5 mini range support and the 21-day EMA. The RSI is pushing lower towards the 46 range support. Unless, inflation surprises and yields reprice higher then it looks like 112 support and the 50-day SMA could be reached. Target on the upside would be previous range support at 113.5.

(Source: TradingView - Past performance is not indicative of future performance.)

Gold:

Talk of inflation without mentioning gold would be remiss. The move lower in nominal yields and move higher in inflation expectations has dragged down real yields, providing a boost to gold. US 10-year yields are at key support on their 200-day SMA and with gold trading near $1830 (very strong resistance), if we see yields tick up this could pressure gold lower. Yes, gold is seen as an inflation hedge, and this property may certainly lend a hand to stem severe weakness, but it’s not going to trigger a new bull trend in my opinion. No matter your view, bullish or bearish - with Pepperstone you can buy and sell gold in a range of alternative currencies, where buying in the perceived weakest currency (euro for example)/ shorting in the strongest currency (dollar) can boost the effect on P&L.

(Source: TradingView - Past performance is not indicative of future performance.)

$1830 is back in gold's sights again. It's a massive hurdle and if cleared would be very significant. The 21-day EMA is moving higher and has crossed above its 200-day SMA. The RSI is right back at where previous rallies have struggled - low 60s. Targets to monitor - upside $1830 is key and on the downside - $1800.