Today, the June US Consumer Price Index (CPI) will be released. Market expectations are for a significant slowdown in the year-on-year CPI, with a forecast of +3.1% compared to the previous +4.0%, and a slowdown in the core year-on-year CPI to +5.0% from the previous +5.3%. On the other hand, the month-on-month CPI is expected to be +0.3% for both headline and core, indicating no significant decline.
Market reactions usually respond sensitively to any deviation between market expectations and the actual results. However, it’s worth noting that there has already been significant USD weakness and JPY strength prior to the release of the CPI data. As a result, if the outcome is in line with expectations, there may be some position adjustments. Personally, I consider a negative month-on-month result to be a significant sign of inflation slowdown, although it would be surprising.
Other economic indicators scheduled for today include the US MBA Mortgage Applications for July 1-7 and the Bank of Canada’s interest rate decision. The recent strong Canadian employment data has increased expectations of a 25 basis point interest rate hike, with only a minority expecting no change. If the Bank of Canada keeps rates unchanged, it may lead to a surprise sell-off in the Canadian dollar.
Today, the focus is on the US Consumer Price Index (CPI). The decline in US CPI has already been factored in, leading to USD selling. Therefore, even if the US CPI declines, caution is advised when it comes to further USD selling. On the other hand, if the CPI comes in higher than expected, it could lead to a reversal of the current positioning, resulting in an opportunity for USD buying.
