The mother of all data points!!!!!!!

Trading the US CPI data

Once again we have a data point being built up into the biggest thing ever since the last biggest thing ever. Is it important? Of course but is it a game changer? I doubt it.

What we’re trading regarding the Fed right now is when and how many cuts there will be. The market is pretty much at 2 cuts, some Fed heads are at 2 cuts and many are saying there’s no rush to cut, so we’re leaning to the less dovish side. That means a hotter, or on the money inflation print today will see the timeline pushed out for cuts, and maybe a reduction (in bps terms) for total cuts this year.

FFR futures are pointing to 60bps of cuts this year, so 10bps over 2 cuts. A hotter number might see that coming down to 50bbps. A more hawkish move would be sub 50bps. I think the risk from this point (on a hotter number) is that we again start to get some of the market talking about hikes again. IIRC there were some small bets being made a couple of months ago so we may see a pick up in that. We know the market likes to go from one extreme to the other. The question will be whether it does that today or not. If it does, then we should expect USD to maybe shift to small dip buying until the next big Fed speaker like Williams (tomorrow), or Uncle Powell, next sits down to tell us what’s what.

I don’t think much changes if the number misses exps but stays above 3%. For me, 3% is the pivot line for the Fed. Another 3% or + print today will make it 10 months of not going below 3%, and that’s a problem IMO. So, while the initial reaction to a softer print might be to sell USD, I don’t think that will last if it keeps a 3 handle. Oh, and don’t get sucked into the “PCE is more important” line of thinking. They watch this just as closely.

Overall, I don’t think we’re going to be seeing USD breaking any new ground today in most pairs. Yes, we might stretch some legs in pairs like AUDUSD but perhaps only to wider range edges like 0.6800 on a softer number, though maybe not in a straight line. Going into today, we know USD has been on the weaker side of things so note that’s the way we’re leaning, and know what it might take to change or keep that pattern.

One pair that’s still in its own world is USDJPY, so as we’re playing the 152 game still, I wouldn’t trust trading that one on the data. There’s plenty of other USD pairs that don’t have such high risk around it.

I’d suggest not getting sucked into the all the ‘showbiz’ around this release. Don’t think we’re going to get an instant 200-300 pip move when we haven’t managed that over all the other inflation prints, PCE prints, NFP prints, FOMCs etc etc. Keep your expectations realistic. Trade your levels, not your hopes and do your homework going into the data on where you would be happy to trade. If you catch the right move, think about taking partials just in case moves fade and reverse (See USDCAD recently as an example). That way you can put money in the bank if you’re right, while managing the rest, and protecting the profit made if it turns against you.

Trade safe everyone.