The world is watching for CPI data tonight

Ok, so last night, the US producer price data failed all the US bulls out there with dismal numbers, with just a 0.1% headline increase, with a core decline of 0.3% for the month compared with expectations of a 0.2% increase. As a result, USD/CHF plunged by 80 pips within an hour and 15 mins. Even though the capital inflows data actually came in stronger than expected at US$75.1bn, that was not enough to stem the dollar decline, and to reverse the overall market sentiment.

Today we have a whole slew of important market-moving data releases: BOJ minutes at 0500 GMT ( watch for signs of the next monetary adjustment from the Japanese central bank), BOE MPC minutes at 0830 GMT (to find out how the Bank of England officials voted in the last interest rate meeting), and the whole-world-is-watching US CPI (consumer price index) at 1230 GMT.

Even though there is only a loose connection between PPI and CPI, the market has interpreted the weak PPI figures as a sign of slowing inflation, which in turn lowers the probability of additional tightening. USD will trade with a bearish tone till tonight’s CPI data. Expect EUR/USD to stay range-bound between 1.2700 and 1.2800 before news.

Should CPI come in stronger than expected, expect EUR/USD to test 1.2660, with a break below to test 1.2600 crucial level. If CPI fails to provide support for further rate hikes, 1.2835-1.2867 should provide some overhead resistance.

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