As usual when there’s big data I put out a short note on what to expect and possible trade ideas. Since I’m a bit befuddled by recent equity price action, the way to play it today is definitely through FX. If the CPI print is higher than expected, sell EURUSD, and if lower then buy EURUSD.
Market Expectations: CPI 5.3% Y/Y, 0.4% M/M, CORE 4.3% Y/Y, 0.3% M/M
Truth be told though, I’m expecting a pretty big number on today’s CPI, again expecting gasoline to be a big driver - we’re told every day about surging energy prices (especially in Europe… although that is less relevant for today’s data) so I wouldn’t be surprised to see even a 0.6/0.7% MoM increase.
That doesn’t mean I expect inflation to be persistent. I still buy into the transitory narrative but eventually expectations will shift to have inflation less transitory.
Even if we see a big beat on inflation today, I would be surprised if it had any impact on the next Fed policy decision, so expect to see a quick reversal of any FX gains over the next days.
Conversely, a big miss which sees Core CPI well below 4% YoY, would be a clear sign that Team Transitory is correct and would likely hit the USD hard and more persistently. In this case expect a breakout of EURUSD toward and possibly above 1.19 as it plays into the Fed’s transitory hand and they can afford to wait a couple more meetings.
Source: FXStreet
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