<p class="MsoNormal">UPCOMING
EVENTS:</p><p class="MsoNormal">Tuesday:
US CPI</p><p class="MsoNormal">Last week we
saw some messy and ranging price action in the major currency pairs. The USD
gained in the beginning of the week, only to give it back at the end of it. The
major events were the US ISM Services PMI and some FedSpeak. The former
surprised with an overall good-looking report and the prices paid component
didn’t help much as it remained high, while the latter pretty much sealed a 75
bps hike coming at the September meeting with more Fed members leaning for the
bigger move. In fact, the market now sees a 91% probability for a 75 bps hike. The
FOMC is in blackout period since last Saturday.</p><p class="MsoNormal">The only
thing that can change this expectation is the US CPI report coming this week on
Tuesday. Nothing else will matter. The CPI M/M figure is expected to show a
negative reading at -0.1%, which would be the first M/M decline in two years
thanks to cooling energy prices. The Core M/M though is expected to show a 0.4%
increase. The CPI Y/Y is expected to show a deceleration to 8.1% and the Core
reading to remain unchanged at 5.9%. </p><p class="MsoNormal">Needless to say,
that a beat on expectations should result in risk aversion in the market with
the USD bid as the Fed may be even less inclined to pause early its tightening
cycle due to the fear of being wrong. A miss on expectations should see a risk
rally and USD under pressure as the market may bring forward expectations of an
earlier than expected pause and subsequent cutting cycle. </p><p class="MsoNormal">A CPI miss
should also reprice the market expectations for a 75 bps hike at the September
meeting and bring it to a 50/50 split or even a higher probability of a 50 bps.
This will make the September FOMC rate decision very interesting because if
they follow yet again market consensus, financial conditions may ease again and
probably even faster than they would like, but if they want to show once and
for all that they are not “joking”, they may hike by an out of consensus 75 bps
and trigger a sell-off in risk. </p><p class="MsoNormal">This article
was written by Giuseppe Dellamotta.</p>
This article was written by ForexLive at forexlive.com.
Source link
