With the US dollar already bottoming ahead of the Non-Farm Payroll report and accelerating after the strong data, combined with higher crude oil prices, I would not be surprised if the US CPI could come in above the 2.3% expectation. Additionally, we’re seeing Chinese shares turning into a correction today, which could put downward pressure on other global markets, particularly if we consider that the S&P 500 was unable to follow the strength of Chinese shares last week. If China continues to turn lower, US stocks could also experience a pullback.
If the CPI report misses expectations, the Fed may need to slow down its dovish policy, which could actually make a very strong bullish case for the US dollar and yields. In such case EURUSD can drop further with the dovish ECB. There’s solid resistance around 1.1140, which could provide an opportunity for a continued move lower.
Also, if stocks come down, I would also expect JPY crosses to turn south, with AUD/JPY already in a potential reversal zone.
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Grega
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