FX Update: US CPI circus and FOMC to shape USD into 2023. FX Update: US CPI circus and FOMC to shape USD into 2023. FX Update: US CPI circus and FOMC to shape USD into 2023.

FX Update: US CPI circus and FOMC to shape USD into 2023.

Forex
John Hardy

Head of FX Strategy

Summary:  There are signs of another round of considerable anticipation heading into today’s November US CPI release after the zany reaction to the soft data print last month. The bigger surprise side would be a stronger-than expected number, and if markets try to lurch into melt-up mode on surprisingly soft data, the FOMC meeting may see Fed Chair Powell doing what he can to lean against easing financial conditions.


Today's Saxo Market Call podcast.
Today's Market Quick Take from the Saxo Strategy Team

FX Trading focus: US CPI circus – is this the “final round” for now?

We noted in today’s Saxo Market Call podcast that the US CPI releases of recent months have generated a far greater impact in US equity markets than in US treasury yields and the US dollar – last month’s USDJPY reaction to the soft October CPI data one important exception. There are also signs afoot that the market is gearing up for another volatile day, with both risk sentiment and the VIX rising yesterday – from which we would infer that the market is leaning to “protect itself” from another soft data print, and meaning that the greater surprise side might be a yawn-inducing in-line report, much less the most uncomfortable scenario for market positioning and expectations: a hotter than expected core month-on-month print.

There are is much to consider over today’s US CPI release, but let’s start with a word of caution: a single month’s CPI data offers very little information value on how inflation will shape up in the New Year, so be wary of the knee-jerk reaction, also as we have an FOMC meeting up tomorrow, one that might have Fed Chair Powell seeing his role as pushing back against excessive easing of financial conditions if we do get a soft CPI print that triggers an attempted repeat of the October CPI print reaction (see November 10 on your USDJPY and equity market charts).

As I have noted in my most recent update, the Fed is likely set to deliver a new set of dot plot Fed Funds projections tomorrow that are well above what the market is pricing. Then again, the market knows that, so incoming data probably carries more weight than Fed guidance unless the Fed really wants to weigh in heavily with surprisingly pointed rhetoric and forecasts tomorrow. Finally, two more points: One, as noted in today’s podcast, we have enormous myopic energy and speculative capital on these individual CPI releases, where the day of the release absorbed nearly all that energy and no further directional move results in the ensuing days. Any reaction move today has more chance of a bit of directional follow-through if it is counter-intuitive (for example if equity market sells off and Two: many speculative shops have likely closed their books on the year, not wanting to commit to P/L risk until the speculative pastures of the 2023 calendar year roll into view.

Chart: USDJPY
USDJPY was the most sensitive of the major currencies to the soft October CPI release last month and is likely to repeat that feat this month on any significant surprises in either direction on today’s release. The pivotal 137.50+ area that was support on the way down is now serving as resistance. It is difficult to conjure up significantly lower US long yields, the most important coincident indicator for USDJPY, without the front-end of the US yield curve also falling (inversion very profound for current US treasury yield levels). And to get short US yields significantly lower, it would take some extremely bad US data to realistically set Fed expectations lower for the coming 12 months. Such a reset would take considerable time, so USDJPY downside may prove more difficult for the medium term unless the above logic is faulty (quite possible!). The upside path back to the 142.25 pivot high from mid-November, on the other hand, is easier to imagine if we get hotter-than-expected US CPI data today, even if it would take some time to establish that US inflation and the economy are running hot enough to trigger a new threat at the cycle highs in US long yields, which is likely the required scenario for USDJPY to vault through the 142.25-145.00 resistance zone and threaten back toward 150.00.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
Few shifts of note in the FX trend developments, with the JPY losing all upside momentum now and perhaps set to trend lower if global yields rev up for a fresh rise. USD trend outlook obviously critical over the CPI release today and FOMC tomorrow.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
As noted above, the JPY is tilting lower in places again, with EURJPY trying to roll higher into an uptrend, GBPJPY doing likewise this week, etc. 

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1330 – US Nov. CPI
  • 2230 – Australia RBA Governor Lowe to Speak
  • 2350 – Japan Q4 Tankan Survey
  • 0005 – New Zealand RBNZ Governor Orr before Parliamentary Committee

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992