Recent history shows that strong CPI print was mediocre catalyst of USD rally, but given uncertainty before the Fed possible November QE announcement, greenback may regain part of the fall today if September US inflation remains at 5.3% or beats forecast.
The rally in oil market is taking a break along with increased demand of investors for sovereign debt of top economies. The yield on 10-year Treasury bonds receded from 1.60% to 1.57%, the yields on sovereign bonds of other major economies fell as well. The dollar itself has lost one of the important short-term bullish drivers and retreats against G10currencies. On the USD index chart below, there is a false breakout of the key near-term triangle pattern which indicates that bullish USD prospects are under a threat:
False breakout is likely and could allow sellers to increase pressure, unless, of course, the US September CPI release shows a bullish surprise today.
An interesting technical setup emerges in AUDUSD chart. The rally in commodity prices together with increased demand for coal boosted currencies of commodity-exporting countries, including the AUD. Since the start of October, Aussie has strengthened against the Dollar by 2.5%. However, commodity momentum is apparently fading which makes it difficult to bet on sustained extension of AUDUSD bullish trend. Also, the price is not far away from major downtrend line as indicated on the technical chart below. An opportunity to short the pair may emerge if the price rises to 0.738-0.74 area:
Inflation in the US is expected at 5.3%, core inflation at 4.1%. The last seven releases of the US inflation report were in line with or above forecasts, but the dollar has strengthened after release of the data only on two occasions. This, on the one hand, indicates a decreased sensitivity of the dollar to inflation data, which is in line with the Fed's signal that they now "value" employment data more.
Nevertheless, given the Fed meeting is on the agenda with possible announcement of the start of the QE tapering in November, the markets may be more sensitive to the incoming data than usual. Below-forecast inflation in September could strengthen sell-off of USD given its technical overbought.
Later today, the minutes of the Fed meeting are due for release. Two main questions: how worried are officials that temporary inflation will become permanent and how much support has received the decision to announce the start of curtailing asset purchases in November. Yesterday, one of the Fed officials, Rafael Bostic, expressed concern about persistence of inflation and called for quick solutions, which suggests the content of the September meeting minutes will be more hawkish than expected.