US CPI up by 4.2% yoy
Analysts expected to see an increase of 3.6% year on year but inflation surprised everyone by coming in 0.60% higher than the consensus estimate. EURUSD started selling off together with the commodity currencies AUD and NZD as the USD rallied. US Treasury yields spiked and Nasdaq got hit. Since the initial reaction, these markets have reverted towards their intraday means while the price of gold and WTI Crude are reacting a little but holding their ground at the time of writing this. On a daily level, the USD Index continues turning higher (as we have pointed before) with help from the Treasury yields. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

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The Fed is likely to argue that there is a fair amount of base effect in that massive inflation jump and is partly right. At the same time, there is real inflation people are feeling and not only feeling but can be also recorded in statistics. According to Bloomberg the price of the average American home has increased $24K on average as the lumber prices are rallying. At the same time, there is no base effect in the month on month figures. The core CPI change was 0.9% vs. 0.3% expected (0.3% previous) and the headline came in at 0.8% vs. 0.2% (0.6% previous). 

Macro Drivers for the USD 
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Next Main Risk Events

  • USD – Crude Oil Inventories
  • USD – 10-y Bond Auction
  • USD – Unemployment Claims
  • CAD – BOC Gov Macklem’s Speech
  • GBP – BOE Gov Bailey’s Speech
  • USD – 30-y Bond Auction

For more information and details see the TIOmarkets economic calendar here.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets.com

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