US CPI In FocusThe headline market event today is the US CPI release for November. The data will be the final key input ahead of the December FOMC tomorrow and on the back of the fall in October inflation, the data today will likely be pivotal for the early 2023 US rates outlook.Market Impact – Bearish USDThe market is looking for monthly CPI to rise 0.3% on the headline figure and core while annual inflation is set to fall to 7.3% from 7.7% prior. While a .5% hike is all but certain this time around, If data is confirmed that consensus levels or below, the market will likely move in favour of expecting a less hawkish outlook from the Fed, paving the way for a slower pace of tightening over Q1 2023. In this scenario, risk assets should be well supported with stocks and commodities set to gain quickly, as well as high-beta FX, as USD and bond yields come off.Bullish USD However, should data come in above forecasts, this will keep more uncertainty in the outlook, likely causing the Fed to stick to a more hawkish outlook for early 2023. In this scenario, USD is likely to be well bid fuelling a sharp move lower in risk assets along with an uptick in bond yields.Technical ViewsDXYThe reversal from 114.58 highs has seen the Dollar Index has seen the market breaking down below the 109.18 level support and below the bear channel lows. Price is now sitting on support at the 104.95 level. Momentum studies have flattened for now, suggesting room for a move higher while support holds. However, below here, focus shifts to 101.22 next.
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