US CPI Due Today
There is a high level of focus on today’s US CPI release which holds the potential to be the most market moving inflation release so far this year.
The consensus forecast is for annual inflation to surge to 2.5% in March, up from 1.7% in February. On a month-by-month basis, the market is looking for a 0.5% rise in headline inflation and a 0.2% rise in core inflation, marking an increase on the prior month’s 0.4% and 0.1% readings respectively.
While large parts of the US economy remain closed, there is a risk that the fresh stimulus introduced this year, as well as the vaccination optimism over the last month, will have a fuelled a pick-up in prices. The Fed has so far cautioned that any pick up in inflation will likely only be temporary and is unlikely to fuel a shift in policy this year.
However, if the data comes in higher than expected this should still see USD trading firmly higher, adding confirmation of the growing disparity between the US economy and that of its major trading partners as vaccination momentum continues.
Where to trade US inflation?
US Treasury Yields are likely to see the biggest jump today if CPI is above expectations. Price is currently testing the 1.685 level and is likely to move back up to recent highs of 1.77 on a strong print. Similarly, if inflation disappoints, yields are likely to come off sharply, especially given the level of Fed push back we’ve heard recently. A downside break of the 1.584 level should open the way for a move back down towards 1.424 given the growing bearish divergence we’ve seen at recent highs.
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