Today, the release of the July US Consumer Price Index (CPI) is anticipated. While the USD/JPY has been notably rising in recent market trends, the prevailing factor seems to be the weaker yen due to ongoing speculation about the Bank of Japan’s continued easing measures. For other major currency pairs such as EUR/USD and GBP/USD, the recent strength of the US dollar has somewhat plateaued since August began. The question remains whether today’s US CPI release will initiate a new direction for the overall USD exchange rates.
The year-on-year growth of the US CPI decreased significantly from +4.0% in May to +3.0% in June. However, market expectations for July are forecasted at +3.3%, indicating a potential slowdown in the growth trend. On the other hand, the market forecast for the core CPI is +4.7%, further indicating a potential slowdown from June’s +4.8%.
If both headline and core CPI deviate in the same direction, the market response is likely to be substantial. For instance, if both indicators decrease from previous levels, it is expected that there will be a strengthening of USD selling. However, if the outcomes align closely with expectations or have minimal deviation, market reactions might be mixed and temporary. The mood also carries a sentiment to await the Jackson Hole Symposium from August 24-26 in a summer-lull market scenario.
Following the CPI release, upcoming economic indicators in the global markets include Turkey’s Unemployment Rate (June), South Africa’s Manufacturing Production (June), US Consumer Price Index (July), and US Initial Jobless Claims (07/30 – 08/05).
Regarding speaking events, there is a concentration of activities during New York Time, including interviews and participation from officials like the President of the Federal Reserve Bank of San Francisco, President of the Federal Reserve Bank of Atlanta, and President of the Federal Reserve Bank of Philadelphia. The US 30-year bond auction ($23 billion) will take place. Additionally, the OPEC Monthly Report also holds significance due to the recent rise in crude oil prices.
Today, it is expected that there will be significant movement based on the July US CPI data. However, considering that the USD has already been bought ahead of time, even if the US CPI comes in slightly higher than expected, there’s a likelihood for a sell-off in a sell-the-fact manner.
I have already entered a short position for USDCHF from here.