The US monthly CPI report is due for release today. The headline figure is seen dropping 0.1% y/y, while the core inflation is seen remaining unchanged at 1.8%. Monthâ€onâ€month, the CPI is seen dropping 0.2% from last month’s â€0.1%.
The USD bulls are possibly at their weakest today since the March 2015 rate hike bets are on the verge of getting smoked. The rate hike bets table looks as follows –
| Fed meeting | Rate hike probability (25bps + 50bps + 75bps) |
| Oct 28, 2015 | 2.3% |
| Dec 16, 2015 | 32.6% |
| Jan 27, 2016 | 40.6% |
| Mar 16, 2016 | 49.8% |
It is quite clear that the probability of the March Fed rate hike is at risk in case the CPI falls more than expected. The markets may have already pricedâ€in a 0.1% y/y drop in the headline number and 1.8% core CPI.
It is also worth noting that a drop in the Fed rate hike bets yesterday after weak retail sales was treated as good news by the equity markets. However, the bad news may become a bad news for the risk assets in case the US equities drop. Moreover, the drop in the equities risks further drop in the Fed rate hike bets.
In case, the stock markets respond negative today, the sellâ€off in the USD/JPY pair would become more intense. Meanwhile, the rally in the GBP/USD could come to a halt, although broad based weakness in the USD would cap the downside. In case, the stock markets reposing positively after the CPI, the Sterling could witness an upside breakout.
GBP/USD†Daily Chart
Sterling has failed twice in the European session to take out offers at 1.55.
The daily chart shows, the pair is hovering around 1.5484 (100â€DMA), which is also a falling channel resistance.
A daily close above 1.5484 would expose 1.5568 (38.2% of Jul 14â€Apr 15 plunge). Above 1.5568, the pair could test offers at 1.5608 (23.6% of Aprâ€Jun rally).
In case, the US CPI surprises on the positive side, the GBP/USD could fall back to 1.5409 (38.2% of Aprâ€Jun rally)â€1.5406 (50â€DMA).
The overall outlook stays bullish so long as the pair does not see a daily close below 1.5387.
USD/JPY – Daily Chart
As anticipated yesterday (Macro Scan ), the USD/JPY pair witnessed a bearish break and fell to 118.35 (127.2% of Jun highâ€Jul lowâ€Aug high).
The bearish technical break has exposed 117.00 – 116.47 (161.8% of Jun highâ€Jul lowâ€Aug high).
A weakerâ€thanâ€expected CPI and a negative reaction from the equity markets would see the pair achieving its downside target immediately.
On the other hand, a positive surprise from the CPI could see the pair rise and consolidate around 119.30 levels, before resuming its fall.
Gold/EUR – Daily Chart
Gold/EUR daily chart is showing an inverted head and shoulder breakout. The neckline resistance at EUR 1032 was taken out earlier today. The immediate upside appears capped around EUR 1053â€1067/Oz
The breakout must be an indication of o a positive action in the equity markets and weakness in the EUR/USD pair, leading to a rally in the Gold prices in the EUR terms or o a more sharp rally in Gold (USD) prices.
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